Visa & Mastercard Come to Terms Over Antitrust

BROOKLYN, N.Y. (CN) - A federal judge entered a final judgment Wednesday that gives merchants the green light to offer customers discounts if they use credit or debit cards that are less expensive than Mastercard and Visa.

Every time a consumer uses a credit or charge cards to buy merchandise, the retailer must pay a fee. The government says Mastercard, Visa, American Express and their affiliated banks collected more than $35 billion in such fees from U.S. merchants in 2009 alone.

But retailers are usually forbidden from accepting cards that charge reduced merchant fees in their contracts with the major credit card companies.

Seven states and the federal government sued the three credit giants in October 2010, claiming that their opposition amounted to antitrust violations.

"Merchants cannot reward their customers based on the customer's card choice," the complaint said. "Merchants cannot even suggest that their customers use a less costly alternative card by posting a sign stating 'we prefer' another card or by disclosing a card's acceptance fee. In short, defendants' merchant restraints prohibit merchants from fostering competition among credit card networks at the point of sale."

Mastercard and Visa entered into an immediate settlement, and the parties have spent the last several months negotiating the terms of the agreement with consumer advocacy groups.

Under the terms the final judgment entered Wednesday, the companies will strike anticompetitive clauses from their contracts and replace them with terms more favorable to vendors.

"The proposed final judgment removes this language from Visa's and MasterCard's merchant contracts and includes broad language allowing merchants to, among other things, offer the consumer an immediate discount for paying with an alternate credit card and inform consumers about Visa's and MasterCard's transaction fees," U.S. District Judge Nicholas Garaufis wrote in an order.

Court documents state that six consumer groups gave feedback on the new terms, and the reviews are "overwhelmingly positive if not enthusiastic."

The individual plaintiffs in the action called the judgment "pro-competitive and in the public interest." The Retail Industry Leaders Association said it "welcomes the settlement," and Sears Holding Co. wrote that it "applaud[ed] the DOJ" for reaching it.

Other reactions were more "lukewarm," Garuafis wrote.

The Judicial Panel on Multidistrict Litigation wrote that the agreement "may prove insufficient." Consumer World expressed "concern over whether potential discounts would, in effect, become surcharges relative to items paid with more expensive forms of payment."

Garaufis decided that their skepticism was no reason to delay the agreement.

"While it is true that some of the public comments have raised potential concerns about the practical effects of the judgment in the marketplace, it is safe to say that not one has expressed disapproval of the proposed final judgment itself," the order states.

American Express did not participate in the settlement, having vowed to fight the complaint last year. That case is still pending.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit