WASHINGTON – Visa and MasterCard are telling their credit union and bank owners the uncertainty they will face over litigation costs for a pending antitrust case over the networks’ anti-steering provisions will continue indefinitely, even as the controversy escalates over the Federal Reserve’s proposed rules on debit fees.
The two cards networks are awaiting final approval by a federal court on an October settlement with the Department of Justice that will open the cards markets to new competition. The settlement in the antitrust case will expose Visa and MasterCard – and their credit union and bank owners – to huge financial claims by merchants who have launched a parallel civil suit.
The two cards networks recently told investors the uncertainty over a massive litigation reserve funded by Visa and MasterCard stock owned by the credit unions and banks will not expire later this month, as planned under the terms of the two company’s initial public offerings, but will extend into the future to a date unknown.
Credit unions hold stock in both Visa and MasterCard – the only two common stocks credit unions are permitted to own – which pay a healthy dividend, but also is on call for use by the two networks to pay litigation costs. The credit union and bank shares, for example, were used to pay a $3 billion antitrust settlement in a Wal-Mart antitrust suit in which merchants challenged Visa’s and MasterCard’s exclusionary clauses barring issuers from offering competitors’ cards.
Meantime, the Justice Department is reviewing public comments submitted on the terms of the settlement before sending the antitrust case for final approval by a federal judge.
The terms of the settlement will require Visa and MasterCard to eliminate bylaws that prevent merchants from steering transactions to cheaper cards or other forms of payment, such as cash. American Express, which also is being sued by the Justice Department, has declined to settle and is contesting the antitrust charges.
The settlement will preclude the two networks from preventing merchants from: offering consumers an immediate discount or rebate or a free or discounted product or service for using a particular credit card network, low-cost card within that network or other form of payment; or expressing a preference for the use of a particular credit card network, low-cost card within that network or other form of payment.
Both networks have said they already have implemented the changes, even before a final settlement is approved.
The antitrust settlement comes as Visa, MasterCard, and their credit union and bank owners, are fighting to block final implementation of the Fed’s interchange rule that would open the cards market to even more competition, while capping fees in debit transactions. The terms of last year’s Wall Street reform bill require the Fed to approve a final rule by April 21 and implement it by July 21.
