A No-Exit Strategy

  Back in July, with incredible foresight, I predicted that the implications of the $3 billion Visa/MasterCard debit card settlements with retailers "just won't quit." And, thanks to Visa, I've been proven right.
  It seems that Visa USA Inc.'s board of directors has approved a bylaw that would impose heavy exit fees on any top-100 Visa check card issuer that reduces volume by 10% or terminates its Visa debit program entirely. Call it a barrier to exit.
  The new rule only came to light after Minnesota-based TCF Financial Corp., a sizable Visa check card issuer, sought requests for proposals from Visa, MasterCard International and American Express Co. as its current Visa contract nears its end. All TCF got back from Visa was a notice about the new rule, which was approved in June with little fanfare. In fact, apparently no one other than Visa's board and staff knew about the rule until TCF Chairman and Chief Executive William Cooper went public about it Aug. 1. (You can get more details in Debit Card Report on page 14.)
  Cooper estimates the new rule, which he believes was passed at the behest of the big credit card issuers that dominate Visa, could cost TCF $20 million if it switched its debit program to MasterCard or AmEx. TCF was one of the first banks to express reservations about Visa's settlement with the retailers, and the exit rule only fueled Cooper's skepticism.
  "I worked under Visa's assurances that they did nothing wrong, and now they want me to pay for it," he told my colleague Jeff Green, editor of ATM&Debit News.
  Visa, however, says it must protect its revenue base in order to fund its $2 billion share of the settlements. "This decision was the best way to ensure an equitable and fair distribution of our settlement obligations," a Visa statement says.
  So who's right? David Balto, a former senior antitrust official with the Federal Trade Commission now in private law practice in Washington, D.C., says Visa is courting the ire of the U.S. Department of Justice. The DoJ, you recall, won half of its battle with Visa and MasterCard in 2001 when a federal trial judge ruled the card associations' rules banning members from issuing American Express or Discover cards were illegal. Visa and MasterCard are appealing.
  But another Washington antitrust lawyer, Georgetown University's Paul Rothstein, who wrote an Afterthoughts column for us in May sympathetic to the associations' views on the retailer case, sees the new Visa rule differently.
  "I do think it is a product of a search for ways to fund the settlement, and does not seem like too bad an idea," he told me in an e-mail from England, where he spent the summer teaching at the University of London. "The settlement was bound to change the landscape in a whole lot of ways, and I think we are only seeing the beginning of the changes with this move."
  In other words, the consequences, intended and unintended, just won't quit.