Credit Card Giants Settle with US Justice Department on Antitrust Claims

Strategic Insights -

The US Justice Department has reached settlements with Visa Inc. and MasterCard Inc. to resolve a two-year probe into restrictions on merchants using their credit card networks. However, American Express Co. has vowed to fight a separate government antitrust lawsuit. The Justice Department's lawsuit alleges that the payment networks' restraints on retailers impose a competitive straitjacket, restricting merchants' ability to offer discounts, benefits, and choices to customers.

Key Takeaways:

  • Visa Inc. and MasterCard Inc. have reached settlements with the US Justice Department to resolve a two-year probe into restrictions on merchants using their credit card networks.
  • The settlements are intended to give merchants more freedom to influence customers on what form of payment they choose and offer discounts, rebates, or enhanced services depending on what card customers use.
  • American Express Co. has vowed to fight a separate government antitrust lawsuit, calling the case "a significant retreat" from previous Justice Department efforts to promote competition in the payments industry.
  • The Justice Department alleges that the payment networks' restraints on retailers impose a competitive straitjacket, restricting merchants' ability to offer discounts, benefits, and choices to customers.
  • The settlements were filed on Monday with the US District Court after the Justice Department sued the three credit card companies.
  • American Express Co. has hired lawyer David Boies to handle its defense against the lawsuit.
  • The Retail Industry Leaders Association, representing merchants, welcomed the news, saying that the credit and debit networks operate within a "broken market" where a few dominant firms set fees and dictate terms with impunity.

Statistics:

  • The Justice Department's lawsuit was filed after a two-year probe into restrictions on merchants using Visa Inc. and MasterCard Inc.'s credit card networks.
  • The Justice Department's settlement with Visa Inc. and MasterCard Inc. is intended to give merchants a competitive straitjacket, restricting their ability to offer discounts, rebates, or enhanced services to customers.
  • The case against American Express Co. will continue, with the company hiring lawyer David Boies to handle its defense.
  • The US Justice Department has expressed a goal of "putting money in consumers' pockets" by eliminating credit-card companies' anticompetitive rules.

Sources:

  • Bloomberg News
  • 2010 Toronto Star