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Two Card Issuers in Settlement

WASHINGTON The Department of Justice said last week that Visa and MasterCard have agreed to a proposed settlement of a civil antitrust action against them that would allow merchants to begin steering customers toward lower-cost methods of payment, marking a major victory for retail groups. American Express, however, the third card issuer named in the antitrust suit, did not agree to the settlement,

WASHINGTON — The Department of Justice said last week that Visa and MasterCard have agreed to a proposed settlement of a civil antitrust action against them that would allow merchants to begin steering customers toward lower-cost methods of payment, marking a major victory for retail groups.

American Express, however, the third card issuer named in the antitrust suit, did not agree to the settlement, so retailers remain bound by their agreement with that company not to favor one type of card payment over another.

“Grocers from across the country are pleased that the Department of Justice has joined in the fight to free merchants from these anticompetitive rules and policies that restrict competition and harm consumers and merchants,” said Peter Larkin, president and chief executive officer, National Grocers Association.

Leslie G. Sarasin, president and CEO, Food Marketing Institute, described the settlement as a “monumental development.”

“Supermarkets have been prevented by credit-card companies from accepting less expensive forms of plastic — ones that do not require the merchant to pay excessive fees just for the privilege of accepting a particular card, thus essentially preventing competition,” she said in a prepared statement.

Retailers have been seeking for several years to get legislators to take action against the practices of credit-card companies, which they claim charge exorbitant interchange fees on in-store transactions and restrict the ability of merchants to steer their customers toward lower-cost payment options. Retailers made some headway earlier this year with the inclusion of the Durbin Amendment on the massive financial reform legislation package, which will give retailers more flexibility in accepting debit cards.

In an interview with SN, Jennifer Hatcher, FMI's senior vice president of government and public affairs, noted that last week's settlement would give the DOJ ongoing jurisdiction over any new rules or restrictions that the card companies may propose.

“Each new rule that comes up, even with the settlement by Visa and MasterCard, will have to be reviewed by the Department of Justice,” she said, noting that was something retailers have been seeking at the legislative level.

In addition, she added, the settlement would allow retailers to steer customers to lower-cost cards within a brand,” she added. “That's been one of our big gripes — if you take Visa, you have to take them all, and there's a wide band of difference between the highest cost and the lowest cost card.”

In the Durbin Amendment, she pointed out, there was nothing to address the competition within a brand.

“That was really driving independent operators crazy,” she said. “You accept a card, thinking it's going to be at the normal supermarket rate, and you have no idea that it cost much more until you get your statement.”

Some observers said they believe the credit-card companies will increasingly seek to thwart federal legislation at the state level.

“They will try to get as much state jurisdiction back for banking and credit as possible, because they think they can affect the outcomes better at the state level than at the federal level,” said Joe Kefauver, a former vice president of public affairs with Wal-Mart Stores who is now a managing partner at consulting firm Parquet Public Affairs. (See Page 31 for more on this and other issues that could be impacted by next month's elections.)

The DOJ action against the card companies was joined by state attorneys general from Connecticut, Iowa, Maryland, Michigan, Missouri, Ohio and Texas.

“Visa, MasterCard and American Express don't just impose fees — they also prevent merchants from offering consumers any cost-saving options such as discounts or rewards for using less expensive forms of payment,” said U.S. Attorney General Eric Holder in announcing the litigation and proposed settlement. “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.’

“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. We want to put more money in consumers' pockets, and by eliminating credit-card companies' anticompetitive rules, we will accomplish that.”

He said the DOJ would continue to pursue its case against American Express.

“We need to ensure that every consumer has access to more choices and lower prices. And that simply will not happen unless, and until, American Express' restrictive rules are changed. Because of American Express' current rules, some consumers will continue to pay higher prices. That is unacceptable, so we will continue to pursue litigation against American Express until we ensure a fair market for every consumer.”