Banking Giants Face Antitrust Claims Over High-End Credit Card

MADISON, Wis. (CN) – The company behind an exclusive card for consumers with exceptional credit says in a federal antitrust complaint that Visa and its member banks JPMorgan Chase and Capital One conspired to undermine its products so they could control the market for affluent cardholders.

Black Card LLC dba Luxury Card, represented by Laura Alexander of Cohen Milstein, filed the lawsuit in Madison, Wis., federal court on Thursday, claiming the companies violated the Sherman Act through fraudulent concealment of their plan to drive the company out of the high-end credit card market since 2007.

“Visa was paying JPMorgan and Capital One, then two of its biggest bank partners, in order to gain control of and manipulate the newly-created affluent credit card market,” the complaint states. “It appears that Visa’s board moved to end the scheme by forcing [former CEO Charles] Scharf out, replacing him with one of its own members. It also appears that, under new leadership, Visa stopped paying the other defendants (in cash or marketing perks) for participating in the conspiracy against plaintiff. Without the anticipated payments from Visa, JPMorgan and Capital sustained massive losses, and apparently made up stories to explain those losses.”

In 2007, Black Card LLC created the Black Card, which was designed to provide rewards to consumers with outstanding credit. It rebranded in 2014 as Luxury Card, and now offers three credit products: the MasterCard Titanium Card, the MasterCard Black Card and the MasterCard Gold Card.

According to the lawsuit, in an attempt to impede Black Card’s success, Visa, JPMorgan and Capital One all “pretended” to be partners with the company to learn its secrets, control the product launch schedule and marketing efforts, and distract the company from serving its customers.

Visa allegedly paid JPMorgan at least $200 million in “marketing incentives” to help its Chase Sapphire card launch quickly for an anticompetitive advantage against the Black Card.

Visa also spent at least $150 million to invest in Capital One’s Venture Card and stop it from buying Black Card LLC, according to the complaint.

“In addition to these one-time payments, Visa funneled hundreds of millions of dollars a year to the other defendants through its ongoing marketing agreements, which provided lucrative payments calculated as a percentage of the amount each defendant’s cardholders spent on the Visa network, payments for year-over-year growth, and additional marketing payments,” the lawsuit states.

Black Card claims Visa wanted JPMorgan and Capital One to be the leaders in the affluent credit card market because they were long-time partners of Visa “and could be counted on to serve Visa’s interests.”

Visa, JPMorgan and Capital One also gave lower quality benefits to its cardholders compared to the Black Card, the lawsuit says, which allowed them to profit more and avoid competition in the market.

“Visa also made sure it had a marketing agreement with plaintiff. Although Visa told plaintiff that the terms of the agreement were standard for the industry and would encourage plaintiff’s growth, those statements were very misleading,” the complaint states. “Visa paid plaintiff approximately $120,000 a year, while it was paying JPMorgan and Capital One hundreds of millions. Unlike the JPMorgan and Capital One agreements, though, Visa’s marketing agreement with plaintiff was not actually about promoting plaintiff’s product. It was about control. Visa attempted to use its marketing agreement to gain control over the valuable ‘Black Card’ trademark and ensure that, if Visa could not use it, no one could.”

Black Card says it began to notice the alleged scheme when Visa tried to end it in 2016 following Scharf’s sudden resignation at a board meeting.

Under new management, Visa stopping paying JPMorgan and Capital One for participating in the conspiracy against Black Card, according to the complaint, resulting in massive losses for the banks.

The alleged scheme forced Black Card to switch from the Visa network to the MasterCard network, which it says was necessary but also “highly disruptive” to its business.

“By the time Scharf resigned and the conspiracy began to unravel, however, the defendants’ conduct had already caused considerable harm to plaintiff’s business,” the lawsuit states. “During the transition from the Visa network to the MasterCard network, plaintiff lost 10 percent of its customer base (despite increasing the rewards available to customers). In addition, plaintiff could not obtain returns on the hundreds of millions of dollars it had invested in developing a ‘Visa Black Card’ brand. And, perhaps most importantly, Visa prevented plaintiff from releasing two new products to consumers—and obtaining revenues from those products—for more than a year.” (Parentheses in original.)

The Wyoming-based Black Card LLC wants a judge to declare that the defendant companies’ agreements were an unreasonable restraint on trade and that they must pay treble damages for lost business.

Black Card’s attorney, Alexander, declined to provide further comment on the case. Representatives for JPMorgan and Visa also declined to comment.

Capital One did not immediately respond Tuesday to email requests for comment.

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