Arizona Takes on|Visa & MasterCard

     PHOENIX (CN) – Visa and MasterCard restrain trade and fix prices through their dominance in credit and debit cards, the Arizona attorney general claims in a federal antitrust complaint.
     Attorney General Mark Brnovich on Thursday sued the credit-card giants – which issue the majority of credit and debit cards in the United States through banks and other financial institutions.
     In doing so, “each bank agrees to abide by the rules of Visa and MasterCard, including rules that restrain competition for merchant acceptance of the banks’ credit and debit cards,” the lawsuit states.
     Merchants suffer from it, Arizona says. It claims the companies “have exploited their market power in the markets for merchant acceptance of credit and debit cards by creating interchange fee schedules designed to increase the interchange fees issuing banks are able to obtain from merchants.”
     Merchants must pay an interchange fee to the issuing banks when they accept a Visa or MasterCard credit or debit cards. The fees make up the largest portion of merchant costs when accepting the cards, Arizona says.
     The competitive restraints prevent merchants from “fostering competition among the issuing banks, and from offering their customers the benefits of using credit or debit cards that are less costly to the merchants,” Brnovich says.
     Competitive restraints include the interchange fees, along with other rules that merchants must abide by, including honoring all cards presented regardless of acceptance fee and not charging a surcharge on transactions with Visa and MasterCard cards.
     “While Visa and MasterCard nominally refer to these as ‘default’ interchange fee schedules, suggesting it is possible for issuing banks and merchants to gain different interchange rates by entering agreements among themselves, the competitive restraints prevent such agreements,” the lawsuit states. “The setting of ‘default’ interchange fees effectively fixes the price of acceptance at a supracompetitive level.”
     Brnovich claims that Arizona, like merchants, must pay excessive interchange fees, costing it “significantly higher costs to accept Visa-branded and MasterCard-branded credit and debit cards than it would if Visa and MasterCard had not fixed interchange fees at a supracompetitive level and if member banks competed for merchant acceptance.”
     Merchants cannot reject Visa or MasterCard cards because of their market dominance, the state says: “(T)hey would face serious economic and competitive consequences if they ceased to do so,” Brnovich says. “A merchant’s efforts to reduce the interchange fees it pays by accepting only cards with lower interchange fees would violate the competitive restraints.”
     A federal court found in 2003 that Visa’s credit card market share fluctuated from 43 to 47 percent, and MasterCard’s fluctuated between 26 and 28 percent – giving them two-thirds to three-fourths of the entire market. Since the finding, the two companies’ shares have not changed significantly, Arizona says.
     In May 2013, Arizona opted out of a settlement in a 2005 class action alleging Visa and MasterCard fixed fees to generate more than $40 billion per year. The settlement came to $7.25 billion.
     Brnovich seeks declaratory judgment, an injunction and damages for violations of Section 1 of the Sherman Act.

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