All Credit Card Companies

Ministry of Justice takes credit card company to court - objections to non-discrimination limitations

DJJ and seven states have brought anti-trust lawsuits against three large credit card companies - American Express, MasterCard and Visa - that have prevented merchant companies from offering rebates, incentives and credit card cost information to point of sales customers.

It is alleged in the complainant's submission that these restrictions have inhibited intra-credit card company to inter-credit card company competitors by preventing dealers from granting rebates or other advantages to clients when using a particular credit card. The DOJ also indicated that it had submitted a proposal for a Visa and MasterCard arrangement which, if accepted by the courts, would oblige the two companies to allow retailers to provide rebates, inducements and information to the consumer in order to promote the use of less expensive means of making payments.

DOJ's case against American Express continues. Though the credit card industy has a long track record of state cartel and privately owned cartel proceedings, this suit is the latest example of the interest of Antiitrust Division Assistant Attorney General Varney in "explor[ing] verticals and other new areas of civilian lawsuits.

"1 "1 It should draw the attention of all undertakings to the fact that cartel enforcement will not only examine and contest horizontally competing arrangements but also those between manufacturers and dealers, even if the manufacturer has a smaller than 25 per cent overall geographic concentration. American Express had a 24% stake in the general credit card and American Express, MasterCard and Visa joint 94% in 2009.

The American Express, MasterCard, and Visa each offer a networking capability to allow credit card operations for million of retailers in the United States to be authorized, processed, and completed. In each case when a user uses a credit card to make a payment at a retailer, the retailer must charge a charge to these companies to accept the credit card and complete the payment ("retailer fees").

Retailers who choose to approve a particular credit card make must adhere to the credit card brand's networking policy. American Express, MasterCard and Visa's networking regulations, which forbid retailers to encourage customers to use a rival credit card with lower retail charges, have deterred retailers from promoting retail credit card networking among themselves, according to the complainant.

In particular, DOJ claims that the restrictions have restricted intra-credit card company compete, resulting in higher trading tariffs (and thus higher consumer prices) and violating Section 1 of the Sherman Act. These restrictions have restricted effective entry into the markets for general credit card networking activities (as opposed to credit card, shopping card, pre-paid card and present card) and for general credit card networking activities for travellers and amateurs (e.g. airline companies, hotel and hire companies ), which the DOJ describes as a discriminatory pricing area ( a area where a vendor may charge different rates to different clients for the same services).

In addition, the complainant claims that Visa, MasterCard and American Express each have significant influence on the relevant geographic areas. It is argued, inter alia, that high levels of product share, the capacity to offer discriminatory prices, high dealer charges and single-homing by the consumer (using only one credit card brand) are compatible with high concentration levels of dominance.

Apart from the contested trade restrictions, the DOJ claims that retailers are free to use various means, such as rebates, reward or other incentive, to motivate consumers to use credit card payment that imposes lower charges on retailers for accepting and handling credit card payments. To keep dealers, credit card network would react to merchants' preference by being more competitive for charges and vendor service.

DOJ argues that increasing rivalry among credit card providers would lower retailer charges and improve conditions of use. Furthermore, according to the DOJ, since the contested trade restrictions entail higher cost for traders and traders transmit those cost to the consumer, retailer selling price for goods and provision of goods and provision of provision of services is generally higher for the consumer.

MasterCard and Visa, as part of the suggested arrangement, have adopted a consensus decision (requiring the assent of the Supreme Court) requiring them to enact, maintain or enforce a policy, or to enter into or enforce an agreement, which would prevent a merchant from: (1) providing a reduction in prices, rebates, free or reduced products or services or other benefits to consumers using a particular credit card make or method of payments (e.

g. 2 ) express a preference for the use of a particular make or kind of credit card; 3 ) promote a particular make or kind of credit card or a particular method of payments through posting information; or 4 ) communicate to the consumer the reasonably estimable or real cost borne by the trader when a consumer makes a purchase with a particular make or kind of credit card.

Despite the suggested MasterCard and Visa settlements, the DOJ will pursue its proceedings against American Express for refusing to resolve the allegations against it. This case should draw the attention of all undertakings, in particular those in focused sectors, to the fact that cartel law assessment is applicable to vertically related arrangements between manufacturers and dealers (as well as horizontally related arrangements between competitors).

It could also concern companies that are not the biggest players in their markets and/or have relatively small respective share. Generally speaking, it is unlikely that cartel administrations will contest potentially restrictive vertically restrained arrangements with dealers or other counterparties, involving non-discrimination rules and national-style safeguards, in the lack of effective remedies (at least in court).

As a rule, the court has refused to find dominance if, as in this case, the companies' shareholding is only 25%. However, DOJ's recent claims suggest that in focused sectors, such as credit card networking for example, a small percentage of the total value added will not protect companies from anti-trust investigations. Companies with similar proportions should be cautious in the imposition of vertically restrained sales to consumers and dealers and should seek legal advice before concluding such arrangements in order to assess and assess them.

However, it is not clear whether the DOJ will attempt to expand the basic tenets on which the complaints are made beyond the credit card sector. Issues such as single-homing by the consumer and multi-homing by the merchant (who accepts more than one credit card brand), bilateral mark texternities (customer value card acceptable to many merchant while merchant value card used by many customer), the credit card companies' supposed capacity to discount the pricing and the high concentration of the credit card industries may make this case inimitable.