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Credit card firms lose ruling
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October 10, 2001: 3:40 p.m. ET
Court says Visa, MasterCard must let banks issue rivals' cards.
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Visa, MasterCard must let banks issue rival cards - Oct. 9, 2001
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NEW YORK (CNNmoney) - A federal judge's ruling opening up the credit card market is a clear victory for Visa and MasterCard rival American Express Co., but it also could benefit consumers, according to some experts.
"If the ruling stands we think there will be a substantial benefit to consumers because of increased competition in the marketplace," said Frank Torrez, legislative counsel for the Consumers Union. "Banks will be able to look at other credit and debit products that card networks offer, and at end of day we actually hope to see a better deal for consumers in terms of interest rates and other fees and charges."
Judge Barbara Jones of federal court in Manhattan ruled Tuesday that Visa and MasterCard must let their member banks issue their rivals' cards, a clear victory for companies like American Express and J.P. Morgan Chase's Discover Card.
However, Jones stopped short of forcing Visa and MasterCard to change their governance structure. The networks are owned by banks that hold significant interests in each, a policy the government said stifled competition.
Visa and MasterCard are expected to appeal the decision, though a Visa spokesman said Wednesday it was too early to say whether the network would proceed with an appeal.
Jon Arfstrom, a banking industry analyst at Dain Rauscher Wessels, said it's too early to predict how consumers, banks or credit card companies will fare if this ruling is upheld, except for card issuers like American Express.
"There is just a war in the payment space in terms of who is doing what. Obviously it's going to be a positive for the card issuers," said Jon Arfstrom, a banking industry analyst at Dain Rauscher Wessels. "It's too early to say where the clear winners are going to be."
American Express (AXP: up $0.57 to $29.57, Research, Estimates) said it looks forward to resuming talks with banks about issuing its cards as it did before Visa and MasterCard issued their exclusionary rules. The company's stock gained 62 cents to $29.62 in midday trading Wednesday.
"In light of this decision, we plan to resume our conversations with a number of banks -- now free to make a choice -- about possible card-issuing ventures," American Express CEO Kenneth Chenault said in a statement following the judge's ruling.
And that's exactly what Torrez said is bound to benefit consumers. In the new credit landscape Tuesday's ruling would create, American Express and other as yet unknown but potential card issuers, would vigorously compete on interest rates, debit products and other products as they vie for consumers' business.
"I think with the way networks can be established very quickly online, the technology is there for somebody else to come in and offer credit and debit products," Torrez said.
American Express spokesman Michael O'Neill acknowledged that it was too early to gauge the effects of the ruling since an appeal by Visa and MasterCard is likely and the ruling does not take effect for another month. 
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