The Department of Justice has launched a formal attack on two sets of rules that have been structural underpinnings of banks' highly profitable credit card businesses.

After two and a half years of investigating, Justice's antitrust division filed a lawsuit Wednesday against MasterCard International and Visa U.S.A. that calls for an end to the policies that have prevented the associations' members from offering the American Express and Discover brands.

Perhaps even more significantly, it targets the duality policy that allows a bank to belong to both MasterCard and Visa.

The charges were forcefully worded, applauded by the bank-owned ventures' critics at American Express Co. and Morgan Stanley Dean Witter & Co., and criticized by the MasterCard and Visa leaderships. The news hurt the stock prices of credit card companies. (See page 30.)

But some parts of the legal complaint were seen as vague, particularly in the "relief" it is seeking on the duality issue.

Visa U.S.A. executive vice president and general counsel Paul Allen said duality resulted from federal regulators' encouragement in the 1970s. He questioned the need for turning back the clock with government "micromanagement."

"It is indeed ironic that the DOJ is attempting to tamper with an industry that it itself had a history in creating," said MasterCard counsel and senior vice president Noah Hanft.

Joel I. Klein, assistant attorney general for antitrust, denied that duality was ever Justice's intent and said, "Americans are not getting what they deserve because of the serious anticompetitive practices of Visa and MasterCard."

Mr. Klein and Attorney General Janet Reno, discussing their charges at a press conference, said competition is limited because Visa and MasterCard are controlled by the same banks.

Ms. Reno said "an extensive investigation" uncovered "persuasive and systematic evidence of the harm done to competition in the credit card market." Mr. Klein asserted that "the No. 1 and No.2 players in this market really don't compete with each other," adding that MasterCard and Visa bankers produced evidence of slow or unaggressive product development.

An American Express statement described the suit as a key step toward breaking an "illegal stranglehold." Morgan Stanley chairman and chief executive officer Philip J. Purcell praised Justice's "thoughtful approach to competition in the credit card industry, their tenacity and their courage."

To comply with the 43-page complaint, MasterCard and Visa would have to repeal any restrictions on member banks' ability to issue competing brands.

Mr. Purcell said there could be a "direct and immediate" impact. "We could have Discover-type products issued by any bank that chooses to do it."

The proposed means to repealing duality were less clear. The government wants "banks governing an association (to) be dedicated to one particular network."

The Justice Department seemed to zero on cases where a bank represented on one association's board also participates in the other's committees. The antitrust division said at least 19 banks seated on the board of one association had a representative on at least one important committee of the other.

Mr. Klein said banks on the boards of Visa and MasterCard must show "great commitment" to each brand. "That doesn't mean they couldn't issue the other card," he said.

"The potential of breaking down duality is far more fundamental than getting rid of the membership rule," said Anita Boomstein, an attorney with the New York law firm Hughes, Hubbard & Reed. Despite the complaint's vagueness, it "could lead some banks to decide not to issue the competing brand or to do so on a smaller scale."

"There are going to be a lot of people trying to make sense of this," said Donald Boudreau, vice chairman of Chase Manhattan Corp. and chairman of MasterCard's board. The government "alludes to a lack of competition in an industry that has more than any other I can think of."

Some in the bank card camp expressed relief that the suit was not worse, but they are not out of the woods. At least 12 state attorneys general have launched a parallel investigation that one state official, who wanted to remain anonymous, said could go farther than Justice's.

The case was assigned to U.S. District Judge Milton Pollack in the Southern District of New York, and a trial is expected to be at least a year away.

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