MasterCard International's request for an injunction against a new Visa U.S.A. bylaw followed a series of failed efforts to persuade several Visa banks to switch their debit card portfolios.
Those banks, including Wachovia Corp., turned down the overtures, citing the Visa rule, which compels defectors to immediately pay a share of its settlement with retailers in the Wal-Mart case, according to MasterCard. The legal filing did not name any other banks.
On Thursday, MasterCard asked Judge Barbara S. Jones of the U.S. District Court for the Southern District of New York, who presided over the Justice Department antitrust case, to block the bylaw, which Visa adopted on June 20. MasterCard argued that the rule effectively locks it out of the debit market by making it prohibitively expensive for banks to leave Visa.
"MasterCard has approached several large Visa Check card issuers offering them incentives to switch brands," according to the filing. "But issuers, including those as large as Wachovia, which accounts for approximately 6% of Visa's entire Check card issuance, have declined, taking into account the serious consequences they would suffer under the Penalty By-Law."
Several banks, including TCF Financial Corp., have objected to the fee scheme. Visa calls the rule a fair one.
Late last month in its announcement that it was leaving the Concord EFS' Star ATM network and joining First Data Corp.'s NYCE, Wachovia said that Visa would start handling all of its debit processing. The card association already processed all of Wachovia's signature debit transactions, but until last month Visa's Interlink shared the banks' PIN debit business with NYCE and Star.
The Charlotte bank, which was known as First Union Corp. until it bought the old Wachovia, attributed the changes to ongoing integration efforts, but the MasterCard filing puts a different spin on the situation.
"The existence of the Visa bylaw did not impact our decision to partner with Visa and NYCE, as this was the best decision for Wachovia customers and shareholders," a bank spokeswoman said Friday.
Richard G. Lyons Jr., the senior vice president in charge of MasterCard's North American debit strategy, said in a filing supporting the motion, "Wachovia's decision is understandable." As the fifth-largest U.S. debit issuer, "it would stand to pay a penalty of more than $120 million if it chose to switch its debit portfolio to MasterCard."
In its filing, MasterCard called the next few months a "particularly critical time in the debit card business," given the changes that the Wal-Mart case brought about and what it characterized as Visa's coercion of its issuers to renew long-term contracts now.
"The status quo is you can move your debit business in its entirety from Visa to MasterCard or vice versa," Noah Hanft, MasterCard's general counsel, said Thursday. Visa's bylaw "disallows financial institutions from doing that."
On Wednesday an appellate panel upheld Judge Jones' antitrust ruling against both associations' rules that prevent member banks from issuing rival cards. She will hear arguments on MasterCard's request on Oct. 30.
Visa's general counsel, Paul Allen, said Friday that it will respond to MasterCard's motion through legal briefs and arguments.
"What you're dealing with now is one side of the story. We haven't had our chance yet," he said. "But the notion that Visa is somehow reaching down into the decision-making process of 6,000 [banks] and coercing them into choosing our debit card is simply ridiculous."
