MasterCard's and Visa's bickering over debit card rules has taken a new turn with the release of a letter from five state antitrust regulators critical of MasterCard.

The opinion was delivered in October but came to light last week. MasterCard International Inc. executives said the opinion supported their recent decision to allow issuers of its Maestro debit card also to participate in competing Visa programs.

But a spokesman for the group of state assistant attorneys general, as well as Visa U.S.A. Inc. and some other legal experts, did not share MasterCard's interpretation.

The letter -- from members of a committee that has been keeping a close watch on card industry competition since the late 1980s -- gave no guarantee that MasterCard's dual-issuance policy is safe from a legal challenge.

MasterCard chose to see the bright side -- that enforcement action does not seem imminent -- and announced its rule change Dec. 1. The New York-based association contends it will promote competition by giving banks freedom to test and sell multiple brands.

The state officials expressed concern that card-issuing duality, as it currently prevails in credit cards, would diminish competition between MasterCard and Visa in the point of sale debit market.

"We think the letter speaks for itself," Joseph Opper, acting assistant attorney general of New York and head of the National Association of Attorneys General payment systems working group, said last week. He signed the legal opinion on behalf of his department's antitrust bureau and its counterparts in California, Maryland, Massachusetts, and Texas.

The key phrase was this double negative: "the undersigned cannot state that the state they represent would not institute a civil enforcement action if Maestro adopted or sought to implement its proposed rule permitting [card-]issuing duality."

Some observers interpreted the letter, reprinted in its entirety below, as a shot across MasterCard's bow and an endorsement of Visa's opposite view that a bank should choose a single debit brand to link to its deposit accounts.

The Maestro U.S.A. board had approved the duality bylaw earlier in the year, and the formal change was announced after the attorneys general weighed in.

In a statement last Friday, MasterCard said it had had further correspondence with the state officials and called attention to one of the last lines in their letter: "We also recognize, however, that the debit card market is evolving and that the relevant facts may change so that the position we have reached may have to be reexamined."

"Maestro U.S.A.'s counsel was informed that the state attorneys general planned to take no action at this time with regard to the change in Maestro U.S.A.'s duality rule," MasterCard said.

MasterCard is overly optimistic to hang its hopes on what is essentially a disclaimer, according to Lloyd Constantine, the former New York State antitrust chief who was responsible for organizing the state attorneys general working group on payment systems in 1988.

"That's standard in letters of this kind -- they have to allow for changes in circumstances," said Mr. Constantine, currently of the New York law firm Constantine & Partners.

He described the document signed by Mr. Opper -- and Mr. Opper concurred with the characterization -- as a "business review letter," from which a company typically seeks some assurance that authorities will take no action against it.

Of the communication to MasterCard, Mr. Constantine said, "It's definitely not a no-action letter."

Mr. Constantine spearheaded the team of state attorneys general that in 1989 sued both MasterCard and Visa to prevent them from launching a joint debit card called Entree.

In an out-of-court settlement, the associations signed a consent decree in 1990 stipulating they would proceed with separate debit programs.

Mr. Opper's recent letter said the states had to be notified "if either Visa or MasterCard commenced a point-of-sale debit card program that did not explicitly prohibit duality."

The letter lists numerous reasons why "the states" were pleased with post-Entree debit card competition, beginning in 1991 with Visa's acquisition of the Interlink program -- it was then concentrated in California -- and MasterCard's establishment of Maestro.

MasterCard said that with its Dec. 1 announcement, the Maestro and Master Money debit services as well as the standard credit card are uniformly pro-duality.

Arthur Kranzley, chief executive of Maestro U.S.A., said he expects member banks will prefer duality and pressure Visa to loosen its restrictions.

Visa's existing rule, which gives banks about a year to make a choice between the associations' debit and commercial card brands, will prevent banks from testing the limits of the states' tolerance.

Carl Pascarella, president of Visa U.S.A., said last week that he saw the Maestro duality announcement as a nonevent. "It's time we focused on our mission of supporting the banks instead of shooting at each other," he said.

A formal legal challenge could materialize if the antitrust officials deem that duality is tantamount to the joint-venture approach that was nixed in the Entree proceeding.

"It is an article of faith in the antitrust community that duality was the root of evil in the credit card business," Mr. Constantine said. "Visa got dragged into duality" by a complicated series of Justice Department actions in the 1970s.

"The proliferation of on-line debit services, including those of the regional networks, would not have happened if Entree was allowed to proceed," the lawyer added.

In MasterCard's Maestro-duality announcement on Dec. 1, Mr. Kranzley, senior vice president and general manager of debit products, reiterated the company's commitment to members' freedom of choice.

In an interview, Mr. Kranzley was optimistic about his programs' chances of closing the gap with Visa's.

He cited recent commitments by Chemical Banking Corp. and Bank of New York Co., among others.

In the U.S., Maestro trails Interlink by 10 million to 29 million cards, and the off-line Master Money card trails Visa Check by four million to 18 million.

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