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DOJ?s Antitrust Unit Tackles Credit Card Companies

By David Stout

Attorney General Eric Holder announced on Monday that the Justice Department had reached settlements with Visa and MasterCard over credit-card acceptance rules, the Antitrust Division’s most visible enforcement action to date, and a move designed to remove restrictions on card use and benefit merchants and consumers alike.

The Antitrust Division and its head, Christine Varney, of whom Holder said he is “really proud, very proud,” have been criticized by some, disappointed by what they see as the DOJ’s reluctance to go after big corporations, especially since the Obama administration signaled in its first months that it would do just that.

The settlements, subject to court approval, were announced as the DOJ said it had filed antitrust litigation against Visa, MasterCard and American Express in the U.S. District for the Eastern District of New York challenging rules that the three card-issuers have in place.

The DOJ asserts that the three credit card companies have maintained rules that bar merchants from encouraging consumers to use lower-cost payment methods. The rules prohibit merchants from offering discounts or other incentives to encourage consumers to  pay with credit cards that cost the merchant less to accept, the DOJ says. Joining  the DOJ in the litigation are the states of Connecticut, Iowa, Maryland, Michigan, Missouri, Ohio and Texas.

Among the terms of the settlements with Visa and MasterCard, the DOJ said, the card companies would allow merchants to offer consumers a discount or rebate for using a particular credit card network; allow merchants to express a preference for a particular card network, and tell consumers about the costs incurred by a merchant with a consumer uses a particular card.

“With today’s lawsuit we are sending a very, very clear message,” Holder said at a news conference at DOJ headquarters. “We will not tolerate anti-competitive practices. We want to put more money, more money, in consumers’ pockets, and by eliminating credit card companies’ anti-competitive rules, we will accomplish exactly that.”

Christine Varney, the Assistant Attorney General who heads the Antitrust Division, stood alongside Holder as she assailed card issuers’ rules that she said “restrain competition among credit card networks for merchant acceptance and distort the competitive process.”

Asked if she saw any chance that American Express would also elect to settle, Varney replied crisply, “The terms on which we will be willing to settle are very clear to everyone.” For its part, American Express issued a statement asserting that the DOJ’s demands would not do what the agency claims, and that it had no intention of settling.

Varney has said her office should not be judged by how often it goes to court, but by the results it gets when it faces down companies. On that score, she and Holder portrayed the settlements against Visa and MasterCard as not just consumer-friendly but business-friendly. “Credit-card acceptance costs U.S. merchants approximately $35 billion each year,” the DOJ said in a statement. “Merchants pass on these billions of dollars in fees to all their consumers in the form of higher retail prices.”

Besides costing companies and, ultimately, retail consumers billions of dollars each year, the restrictive rules “stifle competition and innovation,” Varney said.

As for American Express’s position, Holder said, “We cannot allow this to stand, and we will not.”

The Justice Department lawyers handling the case are Deputy Assistant Attorneys General Molly Boast and Carl Shapiro, and Litigation Section Chief John Read.

This story has been edited since it was first posted.

Full post as published by Main Justice on October 04, 2010 (boomark / email).