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The U.S. Department of Justice and seven states on Monday sued Visa Inc., MasterCard Inc., and American Express Co. over their merchant-acceptance policies, especially those that restrict discounting for other cards or payment forms. Visa and MasterCard immediately announced a settlement, but AmEx said it would fight.
The antitrust lawsuit and a consent decree setting out terms of the settlement, which need court approval, cap a two-year DoJ investigation of the card networks’ acceptance rules intended to discourage merchants from steering their customers to cheaper forms of payment. Visa chief executive Joseph W. Saunders indicated in August that the DoJ was nearing the end of its probe and that he expected Visa to be able to resolve the department’s concerns (Digital Transactions News, July 29).
The National Retail Federation, the nation’s biggest retailer trade group, praised the DoJ and the settlements. “Allowing merchants to offer a discount for lower-cost forms of payment will begin to inject competition into the credit card market, a step that the card companies have resisted for far too long,” NRF senior vice president and general counsel Mallory Duncan said in a statement. “Credit cards are still going to be welcome in retail stores, but consumers are going to flock to the cards that give them the biggest discount.”
Federal law allows retailers to give discounts, the NRF noted, but network rules make doing so difficult. Under the proposed settlements, according to the DoJ, merchants could offer consumers an immediate discount or rebate or a free or discounted product or service for using a particular card network, a low-cost card within that network, or another form of payment. Merchants also could express a preference for the use of a particular card brand, a low-cost card within that network, or another form of payment. Further, merchants could post information in their stores or otherwise communicate with customers about their payment preferences, and they also could communicate to consumers their acceptance costs for various forms of payment.
The case was big enough for the DoJ to call a Washington press conference that included Attorney General Eric Holder. “The companies put merchants and consumers in a no-win situation: accept our card, pay our fees, and don’t even think about trying to get a discount,” Holder’s prepared remarks said. “These restrictive rules prevent price competition among credit card networks, which means merchants face increased business costs and consumers pay higher prices. With today’s lawsuit we are sending a clear message: we will not tolerate anticompetitive practices.”
Both Visa and MasterCard issued statements saying they could live with the settlements. Visa, the biggest network, said its rules “always have allowed U.S. merchants to steer customers to other forms of payment and offer discounts to customers who choose to pay with cash, check, or PIN debit. The new rules will expand U.S. merchants’ ability to discount for their preferred form of payment, though they will not be able to pick and choose amongst issuing banks. The settlement agreement does not address Visa’s rule prohibiting U.S. merchants from surcharging consumers.” (The new Dodd-Frank financial reform law, however, does authorize some merchant surcharging. And the NRF said the settlement goes beyond other provisions in Dodd-Frank that would ban networks from interfering with discounts for cash, check, or debit cards, but did not address lower-fee credit cards or credit card brands with lower fees.)
MasterCard said it viewed the settlement as a “great result,” saying it would not have to change its business practices substantially. “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,” the No. 2 card network 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.”
AmEx, however, remained defiant, calling the lawsuit a “significant retreat” from the DoJ’s earlier efforts to promote payment competition and which would interfere with consumers’ payment choices at the point of sale by steering AmEx cardholders to other networks. (As a result of a DoJ antitrust suit starting in the 1990s, Visa and MasterCard dropped rules prohibiting member banks from issuing AmEx or Discover cards.) “The government’s new legal theory ignores a key point that the Justice Department previously made and that the courts have already decided: American Express does not have the ability to force merchants to accept its products or pricing,” an AmEx statement said. AmEx planned a late-afternoon conference call to discuss the suit.
The DoJ filed the suit in U.S. District Court in Brooklyn, N.Y., the same court hearing a proposed merchant class action against the bank card networks and some big financial institutions over credit card interchange.
Connecticut, Iowa, Maryland, Michigan, Missouri, Ohio, and Texas joined the DoJ’s suit. Three more states also asked for information from the networks, but the planned settlement will end all the state actions, MasterCard noted. Visa said the settlement does not involve monetary damages, though it does include payment of attorneys’ fees and expenses.
