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The Home Depot Inc.’s new lawsuit against Visa Inc. and MasterCard Inc. makes many of the same antitrust allegations that other merchants have lodged against the big networks in recent years. The suit, however, is notable for asking the court to quash Visa’s Fixed Acquirer Network Fee (FANF) and, like that of Wal-Store Stores Inc., for challenging the networks’ rollout of EMV chip cards in the U.S.
The networks, meanwhile, quickly moved to have the Home Depot case, which was filed in U.S. District Court in Atlanta, transferred to the federal court in Brooklyn, N.Y., for consolidation with the big merchant credit card class action against the networks and some banks known as MDL 1720. A pending $5.7 billion settlement in that case, which Home Depot opted out of, still awaits a judge’s final approval.
Filed Monday, Atlanta-based Home Depot’s suit accuses Visa and MasterCard of price fixing and conspiring with banks not to compete in the general-purpose credit and debit card network markets. The networks hamstring merchants through restrictive acceptance rules and by setting “supracompetitive” interchange rates, according to Home Depot, which says it paid nearly $750 million to accept bank cards in 2015.
The suit asserts violations of the federal Sherman Act and of state competition laws in Georgia, California, and other states. It asks the court to set treble damages.
Home Depot also is contesting the networks over the rollout of EMV chip cards. Like Wal-Mart, which is suing Visa in the New York state court system, Home Depot alleges that the networks prefer higher-margin signature authentication with chip credit cards rather than more secure PIN authentication, which is common elsewhere in the world. And, like payment-industry critic U.S. Sen. Richard Durbin, author of the Durbin Amendment to 2010’s Dodd-Frank Act, Home Depot claims Visa and MasterCard enforce their will through EMVCo, the chip card standards body owned by global networks Visa, MasterCard, American Express, Discover, Japan’s JCB, and China’s UnionPay.
“Under the rubric of EMVCo, Visa and MasterCard established specifications favoring their own less secure chip-and-signature cards over more secure chip-and-PIN transactions,” the suit says. “Visa and MasterCard refused to prioritize PIN authentication despite requests from consumers, merchants, and regulators, and guidance from independent studies and think tanks.”
The lawsuit also cites a claim from Wal-Mart’s unredacted civil complaint in New York, which alleges that Visa threatened to crack down on Wal-Mart when the retailer tried to route as many debit transactions as possible to PIN-debit networks rather than to Visa with signature authentication.
“When merchants attempt to promote PIN, they are threatened and punished,” Home Depot’s suit says. “For example, when Walmart implemented a chip-and-PIN protocol at its stores throughout the United States, Visa asserted that Walmart’s use of chip-and-PIN was a ‘material breach’ of Walmart’s agreement with Visa and threatened to disable its network at all Walmart locations.”
Spokespersons for both networks said they are reviewing the Home Depot suit. A MasterCard spokesperson told the Associated Press that the chip alone makes transactions much more secure regardless of the cardholder authentication method. Visa said it might respond later.
Home Depot also singles out Visa’s FANF, which has been controversial since the network introduced it in 2012. The fee rewards merchant acquirers with lower pricing for sending more transaction volume Visa’s way, but Home Depot calls it an access fee for using the Visa network, and that the more locations a merchant has, the more it pays.
“In fact, because the merchant must pay Visa’s fixed fee whether it routes the transaction to Visa or not, the merchant will, in effect, pay twice for transactions routed over competing PIN-debit networks—an up-front payment to Visa simply to be a part of the Visa network, and a second payment to a competing PIN-debit network for any particular transaction not routed to Visa,” the complaint says. “Visa uses the FANF to maintain its monopoly power by compromising the PIN-debit networks’ ability to compete and neutralizing the competitive dynamic the Durbin Amendment was intended to introduce.”
In addition to imposing a price cap on big banks’ debit card interchange revenues, the Durbin Amendment, sponsored by the Illinois Democrat, requires debit cards to give merchants access to two unaffiliated debit networks with each transaction.
Apart from damages and a jury trial, the only specific request Home Depot makes is that the court enjoin FANF.
