Opinions

Discover Financial Services is seeking $6 billion in damages in its antitrust lawsuit against Visa Inc. and MasterCard Worldwide, according to documents unsealed yesterday in U.S. District Court for the Southern District of New York. Discover filed the lawsuit in October 2004, shortly after the U.S. Supreme Court let stand a lower-court ruling in an antitrust case won by the U.S. Department of Justice that forced Visa and MasterCard to allow their member banks to issue credit cards on rival networks. Discover and AmEx alleged in separate lawsuits that Visa's and MasterCard's exclusionary rules hampered their ability to grow over many years. Last year, AmEx reached a $2.25 billion settlement with Visa in its lawsuit, which is similar to Discover's (CardLine, 11/7/07). MasterCard, which has not settled with either AmEx or Discover, said in a statement yesterday that Discover's damages claim is baseless. It contends that after MasterCard withdrew restrictions preventing its member banks from offering cards from rival networks, Discover has not experienced any significant increase in its overall percentage of credit card volume from third-party issuance. Visa earmarked $650 million for settling its Discover lawsuit in a $3 billion fund it established to settle future lawsuits after its record-setting initial public offering in March. "AmEx's settlement of more than $2 billion was considered pretty hefty, so I doubt we would see an amount as high as $6 billion in Discover's case," Eva Weber, an analyst with Boston-based Aite Group, tells CardLine. She expects Visa to settle its case with Discover as soon as possible. "It would seem that Visa would want to resolve this sooner rather than later, so the company can move forward," Weber says.

Legislation recently enacted in Tennessee goes further than other state laws in restricting credit card solicitations of students on college campuses, and it could create a precedent for stricter regulation of such marketing elsewhere, bankers and observers said.

The Fed's rate-cutting strategy to counteract the credit crisis has had consequences in Net banking. The alluring five-percent-plus rates that ING Direct, Citi, Capital One and others once offered for high-yield, online savings accounts (HYSAs) have dwindled to three percent territory.

Senate Majority Whip Richard Durbin introduced companion legislation Thursday to a bill by House Judiciary Committee Chairman John Conyers that would regulate interchange fees.

The American Bankers Association said today it "strongly opposes" the bill Sen. Richard Durbin, D-Ill., introduced yesterday to regulate interchange rates. "Just like the bill introduced in the House in March, this legislation inappropriately inserts the government in the role of setting prices in the private marketplace, undercutting a pricing system that currently benefits consumers, businesses and the broader economy," Edward L. Yingling, association president and CEO, said in a statement. According to the association, interchange revenue helps to support the infrastructure costs required to support the card-payments system and the risk nonpayment issuers routinely assume. "The result will be more federal bureaucracy, less industry competition and fewer choices—and ultimately higher prices—for consumers, as is always the case when government tries to fix prices," the statement continued.

By Brandy Colbert

Last week, the Financial Crimes Enforcement Network released a ruling that says merchants and nonbank owners of ATMs that reload prepaid cards are not in a regulatory category called money services businesses. The ruling means a bank that sponsors ATM and point-of-sale locations must comply with the Bank Secrecy Act for the transactions conducted at locations it sponsors.

The People's Bank of China is expanding the country's credit database by adding details about consumers' utility-bill payments, the central bank has announced. The database already includes information about consumers' loans and credit cards, the bank says. "The credit-record system in China is still lacking in many aspects," Fei Cao, payment analyst with Beijing-based research company Analysys International, tells CardLine Global. "Setting up a more complete credit database is something [that could] provide better card and financial services."

Over the coming months, banking institutions will continue to face deteriorating loan quality, Federal Reserve Vice Chairman Donald L. Kohn warned the Senate Committee on Banking, Housing and Urban Affairs today during a talk on the condition of the U.S. banking system. "House prices are still declining sharply in many localities, and losses related to residential real estate, including loans to builders and developers, are bound to increase further," Kohn said. "In addition, weak economic conditions could well extend problems to other segments of lending portfolios, including consumer installment or credit card loans." Kohn emphasized that financial institutions must be prepared "for the possibility that liquidity conditions become tighter if uncertainties in the capital markets fail to subside or if credit conditions deteriorate significantly." Because of these circumstances, the Fed anticipates the number of banks with "less-than-satisfactory supervisory ratings will continue to increase from the relatively low levels that have existed in recent years."