U.S. sues Visa, MasterCard
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October 7, 1998: 2:08 p.m. ET
DOJ files antitrust action following complaint by American Express
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NEW YORK (CNNfn) - The Justice Department said Wednesday it has filed an antitrust suit against Visa USA and MasterCard International for prohibiting banks that carry their credit cards from offering competitors' cards.
Attorney General Janet Reno and Assistant Attorney General Joel Klein made the announcement at a press conference.
"The Justice Department's antitrust division found persuasive and systematic evidence of the harm done to competition in the credit-card market," Reno said. "For millions of people, competition in the credit-card industry is vital."
The suit stems from a two-year investigation into the credit-card industry and, Reno said, centered around two key points: joint control of both card networks by the same banks, and efforts to keep member banks from issuing cards from smaller competitors like American Express and Discover.
First, "what many consumers do not know is that Visa and MasterCard are controlled by the same large banks," she said. "That is simply not competitive. In numerous instances, key officials in both (credit-card) networks have admitted that the banks that govern them have limited competition between Visa and MasterCard."
Klein later quoted a few statements made by these officials, including the president and CEO of Visa USA [307K WAV] [307K AIFF].
Second, Reno said, "Visa, MasterCard and their member banks have agreed not to issue cards on smaller, competing credit-card networks such as Discover and American Express. These exclusionary rules deny consumers the ability to choose among a variety of credit-card products."
The DOJ said that it had found evidence that the lack of competition between Visa and MasterCard had hampered technological innovation in the credit industry.
"Our investigation has uncovered several specific examples where consumers have actually been harmed," Klein said. "Smart cards, which were delayed for about a decade . . . as well as the development of a system of secure transactions for the Internet, something consumers and businesses obviously would welcome."
American Express Co. sparked the probe when it complained that its efforts to persuade U.S. banks to issue its cards has been unsuccessful because the banks, usually Visa and MasterCard members, were restricted by the two companies.
Lawyers for MasterCard called the action a "solution in search of a problem."
In April, attorneys general from 11 states said they had opened their own investigation of alleged abuses in the credit-card industry.
Visa and MasterCard are privately held. However, shares of American Express (AXP) spiked 3 to 73-1/2 before being halted on the New York Stock Exchange due to an order imbalance.
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