Antitrust Settlement Opens Market For Cards

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WASHINGTON – Visa and MasterCard on Monday agreed to take additional steps to open the market for card interchange to more competition as part of a deal to settle a new antitrust suit brought by the Department of Justice.

In its suit, the Justice Department said the two card networks engage in a variety of practices which ensure that card transactions are steered to the cards with the highest fees.

The Justice Department said the two companies, and American Express, have rules that prevent merchants from offering consumers discounts, rewards and information about card costs, resulting in consumers paying more for their card transactions.

AmEx has refused to settle so far, saying its small share of the cards market prevents it from acting in an uncompetitive manner.

The settlement will allow merchants to offer consumers discounts, rebates or services for using a particular card; to express a preference for a particular card; to promote a particular card; or, to tell consumers the costs of using a particular card or network.

“If the settlement with Visa and MasterCard is approved,” said Attorney General Eric Holder, “companies and retailers will be able to provide their customers with more options and cost-saving incentives. And more consumers will be able to receive discounts and, ultimately, enjoy the benefits of lower prices. For example: if you use a preferred, lower-cost credit card, an airline could offer you more miles or a merchant could provide you with a rebate. Merchants will also be able to inform consumers which cards will lower business costs the most, allowing these savings to be passed on to consumers.”

The settlement comes just as the ink is drying on the Dodd-Frank Financial Reform Act and its Durbin amendment, which bars Visa and MasterCard from preventing merchants from offering discounts for the use of cash or encouraging the use of other cards. The Durbin amendment directs the Federal Reserve to study interchange charged on debit card transactions and to order a roll-back in fees if the Fed finds they are too high.

Revenues from card transactions have more than tripled over the past decade to more than $60 billion last year, with credit unions, banks and merchant acquirers all sharing in the growing pie. The vast majority of those fees, about 80%, were processed through Visa and MasterCard.

Attorney General Holder said his office will continue to pursue AmEx. “American Express maintains the industry’s most restrictive merchant rules,” he said. “American Express also has the highest fees of any credit card company. They refuse to give merchants the ability to offer rewards to consumers who use a less expensive card, or even to provide information to consumers about the costs of using American Express’ cards.”

“Most importantly, American Express’ rules prohibit any of the millions of merchants that accept American Express from taking advantage of the discounts and rebates Visa and MasterCard now can allow as a result of our settlement.”

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