MasterCard Worldwide and Visa Inc. announced Oct. 4 that they have settled an antitrust lawsuit filed by the Department of Justice against both companies regarding payment network rules that prohibit so-called merchant steering, in which merchants steer consumers towards using less-expensive card products for payment.
The lawsuit, which also names American Express Co. as a defendant, stems from a review the DOJ initiated in 2008 regarding the payments networks’ rules regarding merchant acceptance of cards bearing their brands. Most payments networks prohibit merchants from taking steps to steer consumers from using one brand’s card instead of another to get lower interchange rates.
American Express Co. Chairman and CEO Kenneth Chenault said in a press release Monday that the New York company does not plan to settle the lawsuit. “In today’s action, the department has sued a party proven not to have market power,” Chenault said. “It represents an extraordinary retreat by the antitrust division. Instead of promoting competition, it now seeks to promote regulation that would ultimately limit competition.”
One analyst suggests that consumers will be upset if merchants limit their payment options. “Even if the settlement isn’t consequential in terms of monetary damages, the real question is will the merchants actually use this now that they have the ability to say they’re going to accept one card over another or charge more for certain types of cards,” John Cost, managing director at Auriemma Consulting Group, tells PaymentsSource.
In the lawsuit, which was filed in U.S. District Court for the Eastern District of New York, the DOJ alleges that the defendants “have suppressed competition with rival networks” by not allowing merchants to offer customers a discount for using “a network credit card that is less costly to the merchant.”
“Merchants cannot even suggest that their customers use a less costly alternative card by posting a sign stating ‘we prefer’ another card or by disclosing a card’s acceptance fee,” the lawsuit says. The suit proposes that the companies permanently stop enforcing merchant restraints, fund programs to educate merchants about their rights to encourage customers to use different payment methods and pay for the costs stemming from the legal action.
Visa says the settlement will not affect its business. “As we referenced in our previous public filings, our constructive conversations with the Department of Justice have resulted in an amicable resolution of the Department’s broad-based investigation that will lead to Visa making a reasonable modification to our discounting rule,” Josh Floum, Visa general counsel, said in a statement. “Visa always has allowed merchants to discount for cash and PIN-debit, and extending the ability to discount by network brand is a reasonable accommodation. The settlement also gives U.S. merchants new tools to manage their acceptance costs while benefitting from the tremendous value electronic payments deliver.”
There is no monetary obligation associated with the DOJ settlement, according to Visa.
“The consent decree with the DOJ calls for modification of a rule to confirm that merchants may offer a discount for cash and all forms of payment, including competing brands, which is precisely what we already permit,” Noah J. Hanft, MasterCard general counsel said in a statement. “Our discounting practices have long been more flexible than our major competitors’ and have permitted merchants to discount for cash, checks, debit cards or other payment brands.”
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