Visa's Welcome To Nonbanks Excludes Sears

Visa U.S.A. has opened its doors to nonbank companies - but not to the one that most wants to enter.

The San Mateo, Calif.-based card association voted late Monday to lift its year-old moratorium on admitting members owned by nonbanks. But it left intact a 1989 bylaw that forbids companies affiliated with "direct competitors" - namely, Sears Roebuck & Co. and American Express Co. - from joining the association.

Sears issues the Discover card and American Express the Optima card, both of which are general-purpose revolving credit cards.

The decision to bar Sears came days after Congress adopted legislation specifically designed to let the giant retailer in.

Sears acquired a Utah thrift with a Visa membership from the RTC last year. The banking bill includes a provision obliging all companies to honor contracts with thrifts purchased from the Resolution Trust Corp.

Sears' Lawsuit

In January, Sears sued the card association on antitrust grounds for prohibiting it from launching a Visa program through the thrift.

The banking bill's drafters intended to give Sears powerful ammunition in that closely followed lawsuit, sources said. But some legal experts say that on close examination the amendment does not ensure a victory for Sears.

The measure is loosely worded and does not mention Sears or Visa by name.

Law Not Definitive

"The legislation will have a bearing on the litigation, but it won't be dispositive in either direction," said Lloyd Constantine, a partner at McDermott Will & Emery and a former chief of New York State's antitrust bureau. "There is too much wiggle room here."

Visa, he added, could cite provisions in the law in its own defense. For example, the legislation says "performing" contracts are breached if a thrift sold by the RTC fails to "comply with any material term or condition" of its agreement with service providers, such as Visa. The card association is likely to argue that when the Utah thrift allowed itself to be purchased by Sears, it violated a Visa bylaw, Mr. Constantine said.

It is unclear what effect Visa's new plan will have on the basic antitrust arguments in the Sears case.

Some lawyers said antitrust enforcers will welcome the exclusion of Sears and American Express. Keeping the giant companies out of the bank card group ensures that consumers have several distinct credit card brands to choose from.

"It's a procompetitive bylaw," said Anita Boomstein, a partner with Hughes, Hubbard & Reed.

But Visa's decision to allow other nonbanks to join could undercut the argument. "The lifting of the moratorium will be used by Sears," Mr. Constantine predicted.

Sears could say that Visa cannot have it both ways, he said. It cannot argue that competition is promoted by forcing Sears and American Express to run their own card networks while letting other nonbanks avoid the costs of developing and marketing their own card brands.

Original Moratorium Praised

Visa adopted its nonbank moratorium in response to the tremendous success of American Telephone & Telegraph Co.'s Universal credit card. The moratorium won praise from bankers who wanted to protect their valuable card turf from powerful competitors, but some bankers said Visa's hard-nosed stand was hurting the organization.

MasterCard International has actively recruited phone companies, oil companies, retail stores, and others to set up joint card programs with member banks since the moratorium was imposed.

The Visa moratorium did not forbid such alliances, but never solicited them on behalf of its members.

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