Return of an Interchange Firebrand

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.