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Credit Card Companies Next on DOJ’s List
By Mitchell S. Ostwald

Following the government's recent victory in the anti-trust case against Microsoft, the Department of Justice starts its trial against the credit card industry this week.  Many commentators believe that the results of this trial will have as major of an impact upon the credit card companies as the Microsoft case had on the computer industry.

This lawsuit, which was filed in U.S. District Court in Manhattan, New York in October 1998, alleged that Visa USA and Mastercard International, Inc. violated anti-trust laws by limiting competition. Visa International, which governs Visa USA, and other regional subsidiaries were also named in the lawsuit. The government charged that the same group of banks controlled both Visa and Mastercard, lessening competition between the two networks. They said rules adopted by both credit card associations restrict the ability of banks to do business with other card networks such as American Express and Discover Card. The government maintains that this reduces consumer choice and slows technological innovations in the credit card industry.

Visa and Mastercard are set up as non-profit associations with representatives of their 8500 member banks sitting on the boards, as well as the policy making committees. Their rules allow banks to issue both Visa and Mastercard credit cards, but bar member banks from issuing other cards. These two companies control about 75% of the credit card markets, while American Express maintains a 17% share, and Discover and other cards hold the remaining 8% of the credit card market.

There are strong arguments in favor of both results; from Mastercard's view there is already intense competition between them and that consumers have a lot of choices. Advocates for maintaining the current system also believe the excluded banks (American Express and Discover) are looking to the government to give them access to databases which will allow them to pick the better credit card customers. The opposing view suggests that if there was true competition, there would be greater pressure upon interest rates, thereby providing the consumer with greater opportunities and lower interest rates.

It is interesting to note that a separate suit has been brought by Walmart Stores, Inc. and about 20 other retailers who allege that Visa and Mastercard have used their dominance in credit cards to force them (the retailers) to accept their debit cards for which they have been charged excessive transaction fees. Earlier this month, the Second U.S. Circuit Court of Appeal agreed to review the lower court's decision granting class action status to the case. The retailers reportedly are seeking $1.8 billion dollars.

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