Return of an Interchange Firebrand

  • Although the House Financial Services Committee finally held its first discussion Thursday on whether to restrict bank interchange fees, the hearing served chiefly to dispel the idea that the panel was eager to legislate on the issue.

    October 8
  • A sustained tide of consumer anger about all types of bank fees is adding momentum to the long-running merchant campaign against interchange.

    July 9
  • A veteran of the interchange battles said the merchants that are suing Visa U.S.A. Inc. and MasterCard Inc. cannot extract as favorable a settlement as the one in the Wal-Mart case.

    September 25
  • A Blunt Assessment

    February 10
  • SANTA FE, N.M. - A debate among representatives of merchants, payment networks, and issuers about whether interchange should be regulated started out with an academic tone but soon turned vitriolic.

    May 9
  • Best Buy Suing Visa, MC; Other Retailers to Follow? - June 20, 2003 Comment: Give Debit Issuers a Voice in Wal-Mart Settlements - June 17, 2003 MasterCard to Up Credit Interchange - June 6, 2003 Wal-Mart Impact Hinges on POS PIN Uptake - June 5, 2003 Discover's First Step Toward Bank Alliances - June 3, 2003 Month After Settlement, Signs Debit Still in Flux - May 30, 2003 Rulings Have Discover Set To Partner With Banks - May 28, 2003 Keychain Cards? Rewards? Just Tell Us About Wal-Mart - May 23, 2003 B of A Exec on Visa Board Slams Litigation - May 20, 2003 First Data Deal Looks Good Despite Debit Scene Change - May 19, 2003 Deal Cost MasterCard $721M in 1Q - May 16, 2003 MBNA CEO: Fees For Settlement Not Our Problem - May 15, 2003 TCF Files Challenge to Visa Debit Settlement - May 14, 2003 Wal-Mart, DOJ Successes Inspired Paycom Suit - May 14, 2003 After Debit Settlement, Issuers Fret, Mull Options - May 13, 2003 First Data Likes Outcome Of Wal-Mart Case, a Lot - May 12, 2003 Letter to the Editor: Settlement Is Also A Big Opportunity For Debit Issuers - May 9, 2003 Visa, MC Back in Court Defending Bank Alliances - May 09, 2003 NYCE Explains July 1 Interchange Fee Hike - May 6, 2003 Customers Get Savvier in Debit Debate - May 6, 2003 Settlements In Hand, Lawyers in Debit Suit Lighten Up In Court - May 5, 2003 What Debit Settlements Really Mean To Issuers - May 2, 2003 Letter to the Editor: After Settlement, Visa, MasterCard Must Be Reshaped - May 2, 2003 Visa Near Settlement: Parsing the Possibilities - May 1, 2003 Settlement A Turning Point for MasterCard? - April 29, 2003 1Q Earnings: Concord Results Make First Data Deal Look Better - April 30, 2003 Letters To The Editor: Wal-Mart Suit vs. Visa, MasterCard Is Far from Over - April 25, 2003 EFS Deal Is Big -- So Are First Data's Aspirations - April 3, 2003 How a Wal-Mart Victory Would Hurt Bank Issuers - April 10, 2003 Will Ruling Shake Banks' Faith in Visa, MasterCard? - April 7, 2003 Viewpoint: Banks Must Act to Prevent Disaster in Wal-Mart Case - April 4, 2003 Retailers Claim Edge in the Wal-Mart Case - April 2, 2003 As Wal-Mart Trial Nears, Gauging Possible Results - March 21, 2003 MasterCard Seeks Separate Trial - March 17, 2003 Long Road of Wal-Mart Case Finally Leads to Court - January 13, 2003 Review/Preview: Wal-Mart Case Should Be Heard, Other Action Seen - December 31, 2002 Case Watch: Wal Mart - November 18, 2002 MasterCard, Visa Defense Vs. Wal-Mart Unsealed - July 25, 2002 Justice Dept. Unrelenting in MC/Visa Case - July 02, 2002 Could Antitrust Loss Bankrupt Visa and MasterCard? - June 21, 2002 Appeal on Class Nixed, Visa/MC Suit Nears Trial - June 11, 2002 A Debate Over the Damages Claimed in Wal-Mart Case - May 2, 2002 Update: Wal-Mart Suit Headed for High Court? - April 4, 2002 Wal-Mart Class Certification Raises Stakes in Card Suit - October 19, 2001 Rebuking Visa, MC, Judge Opens Banks to Amex - October 10, 2001 For the Plaintiffs -- 4 Million Of Them - March 14, 2001

    June 23
  • BROOKLYN, N.Y. - At the end of what was supposed to have been the first week of the Wal-Mart trial, there were nothing but smiles and handshakes as lawyers for the retailers, Visa U.S.A., and MasterCard International submitted a time line for wrapping up the settlement by September.

    May 5

A polarizing figure from past battles between merchants and payments companies has returned to the interchange debate with harsh words — for both sides.

Lloyd Constantine, who maneuvered the card industry into paying the largest antitrust class-action settlement in history, has resurfaced six years later with a book about the case and some surprising criticism about other lawsuits that he sees as riding his coattails.

For example, don't look for his unequivocal support of a long-running merchants' suit alleging that interchange constitutes antitrust violations and price fixing.

"I'm not commenting on the ultimate merits of the cases, but they seem to be lawyer-driven cases. Our case was not a lawyer-driven case," Constantine, the lead attorney for Wal-Mart Stores Inc. and other merchants in the class action settled in 2003, said in an interview last week.

"They seem to be cases that had looked at our case and said, 'Look at those guys. Wow, they got rich.' I saw the process, I saw them running around the country, signing up clients — that's something that I've never done."

Constantine acknowledged the irony of such comments, having long been a target for similar accusations from payments industry members, especially after his suit was settled for $3 billion. (That included about $225 million in attorneys' fees.) The settlement, which also mandated the untying of debit card from credit card acceptance and a reduction in the interchange rates for signature-based debit, preceded a second round of lawsuits filed against Visa Inc., MasterCard Inc. and their bank customers.

His comments, and the book, "Priceless: The Case that Brought Down the Visa/MasterCard Bank Cartel," come as interchange has become an increasingly high-profile and mainstream issue, with advertising campaigns from merchants and networks alike, the public riled about the credit card industry in general and regulators and lawmakers looking into interchange.

And then there is the merchants' lawsuit in the U.S. District Court for the Eastern District of New York, which is seeking class-action status on behalf of plaintiffs including the National Association of Convenience Stores, the National Restaurant Association and merchants like Payless ShoeSource.

K. Craig Wildfang, a partner at Robins, Kaplan, Miller & Ciresi LLP and the plaintiffs' co-lead counsel, called Constantine's comments "unfortunate and misguided," but said they were "not going to have any impact on our case."

Merchants were "very unhappy with the results of the Wal-Mart case," which was "a very narrow attack" on one part of the interchange system, Wildfang said. "They wanted true reform, which is why our cases were much more broadly based."

Constantine left the payments realm three years ago to join his protege, then-New York Gov. Eliot Spitzer, as a senior adviser in Albany, but his name still elicits strong reactions from industry members. Even his critics — several of whom were reluctant to speak on the record — characterize him as an intelligent and "dangerous" force in the payments industry.

"He's a figure that everybody in the networks is very, very aware of," said Eric Grover, the principal in the payments consulting firm Intrepid Ventures and a veteran of Visa. "I don't think there's anybody in the industry who's particularly fond of the guy, but there's a certain respect. He's aggressive, he competes to win, he's a smart guy."

After Gov. Spitzer's resignation last year, Constantine returned to semi-retirement and finished polishing up a book about the Wal-Mart case. "Priceless" was published Oct. 6, during the same week that members of the House Financial Services Committee held hearings on a bill that would regulate interchange fees, and Visa unveiled an advertising campaign aimed at lawmakers in Washington.

But industry members raised doubts about whether his book would influence the current debate, especially the three bills in Congress that propose various methods for regulating interchange.

"Lloyd is a brand across the card industry — everybody knows what he stands for, everybody knows his arguments," said Duncan MacDonald, a former general counsel of Citigroup Inc.'s Europe and North America card businesses. "He can end up supporting people who would naturally take his view, but he is not going to be persuasive to anybody else who is sitting on the fence."

Constantine, who in 2005 called on the Federal Reserve Board to "step up to the plate" by enacting regulations that would disallow interchange fees of PIN debit networks, stood by that position last week, while acknowledging that interchange on credit "is a different thing. The economics on credit are entirely different than the economics on debit."

But such comments do not signal any kind of wholesale switch to the payments industry's viewpoint on interchange.

"The world would be better off if there were no interchange on the credit card side, and that the way that the product is paid for is by cardholders paying for what they get and merchants paying for what they get," he said. "And the efforts in Congress to look at that are, I think, well founded."

Visa would not discuss the book. Sharon Gamsin, a spokeswoman for MasterCard, called it "a rehash that in some cases distorts information that has been in the public domain since the DOJ trial, and doesn't add anything to the interchange debate. But, more importantly, Constantine recognizes the intense competition in today's payments industry, which undercuts the arguments being made by merchants in Washington and in the antitrust litigation."

(Referring to the initial public offerings at Visa and MasterCard, Constantine writes in the book, "The competition between Visa and MasterCard … and the innovation that will occur in a newly competitive environment are likely to produce benefits to the public that will far surpass even the record-setting benefits explicitly required by the Merchants' Settlement.")

According to Nielsen BookScan (which tracks many, but not all, retailer locations), "Priceless" has sold less than 500 copies to date. Constantine said he's been pleased by the response from readers who would not normally be interested in interchange or antitrust lawsuits.

Constantine, who has returned as counsel to the firm he founded, Constantine Cannon LLP, is also preparing to teach a course at Columbia Law School. But for the immediate future, he is putting the finishing touches on a second book that, he admits, will probably get a little more mainstream attention than "Priceless."

"Journal of the Plague Year: An Insider's Chronicle of Eliot Spitzer's Short and Tragic Reign," due out in April, chronicles the 18 months Constantine spent in Albany as a senior adviser to Spitzer, and the front-row seat he had during his friend's rise and fall. "It's not a happy book," he said.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER