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Credit card suit drags on
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July 13, 2001: 5:12 p.m. ET
Retailers charge Visa and MasterCard with forcing them to offer all cards
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NEW YORK (CNNfn) - The outcome of an antitrust lawsuit against the nation's biggest credit card networks could potentially affect the prices Americans pay for everything from a box of screws to groceries and gasoline, the plaintiffs said.
More than four million retailers, including the world's biggest, Wal-Mart Stores Inc. (WMT: Research, Estimates), sued credit card networks MasterCard International and Visa International five years ago in Federal District Court in New York, charging that their "Honor All Cards" rule forces merchants to accept a debit card carrying a fee that takes a big cut of each sale and slows sales volume.
The debit cards in question are off-line cards requiring customer signatures and longer transaction processing times. Because of the labor involved, they cost more to process than online debit cards that customers simply swipe through a pad at the checkout counter while entering a code.
Merchants also claim the card networks are trying to monopolize the market by tying all their cards together.
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"Visa and MasterCard have attempted to monopolize the debit card market, and one of the ways is through these tying arrangements."
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Lloyd Constantine
plaintiffs' attorney |
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MasterCard argues that demand for debit cards is split 50-50 between off-line and online cards, and since demand remains for the more expensive off-line cards, retailers should offer them to customers as a payment option.
MasterCard and Visa counter the rule increases sales volume by offering consumers more payment options. In February, the networks appealed the class action status of the suit and have been waiting for a New York Appeals Court judge's decision ever since.
The suit comes as MasterCard and Visa await a federal judge's decision on a government antitrust case heard last year charging the card networks, which are both collectively owned by the same group of banks and share many board members, with anticompetitive practices against America Express and Morgan Stanley's Discover Card.
MasterCard and Visa, which together control more than 90 percent of credit card transactions, are anxiously awaiting a judge's decision on whether to grant class action status to the suit, which was filed by New York attorney Lloyd Constantine in Federal District Court in 1996.
"The 'Honor All Cards' policy says if you're a retailer and you take my credit card, then you have to take my debit card. Then whatever new product I come out with, you're forced to take all of these additional cards. It's a classic tying arrangement," Constantine said. "Visa and MasterCard have attempted to monopolize the debit card market, and one of the ways is through these tying arrangements."
But MasterCard's lawyers argue that it was just such an arrangement that helped put their credit cards in most stores over the last 30 years, and that without it, consumers have fewer choices in paying for goods and merchants gain control over how consumers purchase items.
Attorneys for MasterCard draw parallels between their case and the government's antitrust case against Microsoft Corp. (MSFT: down $0.26 to $71.34, Research, Estimates), which was accused of bundling its software onto computer makers' machines, forcing them to sell their product.
Though Microsoft was ordered to split into separate companies, it has won a series of appeals in recent weeks, giving MasterCard and Visa encouragement for victory.
Still, the card companies have said they are ready to proceed even if the class action status of the suit is upheld. No matter what the outcome, both sides agree it is likely to impact upon the way American consumers do their shopping. 
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