Banks cannot limit choice of credit card
By Larry Neumeister
Associated Press
NEW YORK — A federal judge ruled yesterday that the Visa and MasterCard associations must allow their member banks to issue other credit cards, clearing the way for American Express and Discover to more widely distribute their products in America.
In a 157-page ruling, Judge Barbara S. Jones said the U.S. government had highlighted "serious antitrust and economic concerns" with rules that had been imposed by Visa and MasterCard to try to limit which cards banks issue.
Such an agreement among competitors, she said, was the equivalent of "illegal group boycott." Jones emphasized that the goal was to increase consumer choice.
Still, the judge rejected claims by the government that Visa and MasterCard had colluded in the composition of their member boards to keep from competing with one another.
Lawyers for Visa and MasterCard said they were studying the decision to determine if they should appeal.
Visa International, based in Foster City, Calif., and MasterCard International Inc., headquartered in Purchase, N.Y., are nonprofit associations made up of some 8,500 banks. Together they control about three-fourths of the bank credit card market in the United States.
The Justice Department brought the suit in October 1998, alleging that Visa and MasterCard violated antitrust law by limiting competition.
The suit charged that the same group of banks control both Visa and MasterCard, lessening competition between the two networks. And it said rules adopted by both credit card associations restrict the ability of banks to do business with other card networks such as American Express and Morgan Stanley Dean Witter & Co.'s Discover card.
In a statement issued after the ruling was issued, the Justice Department said it was "pleased that as
a result of the court's ruling, there will be more competition among credit card networks and the banks that issue credit cards, giving consumers more credit card choices."
The ruling also was praised by Kenneth I. Chenault, chairman and chief executive of American Express.
"Today's decision is a win for the American consumer. It will ultimately lead to more competition and a broader choice of innovative products," he said in a statement. "The decision is also a clear loss for Visa and MasterCard, and it illustrates how they have broken the law over a long period of time."
He said American Express would resume conversations with banks now that they are freed to look at new card-issuing ventures.
Noah J. Hanft, general counsel for MasterCard International, said his company was studying the ruling.
"We're strongly considering filing an appeal, but haven't made that decision yet," he said.
Hanft said he felt the judge's decision had accepted as valid the basic organizational structure of the credit card associations. But he added that the ruling also would allow American Express "to cherry pick" the most-profitable banks as issuing partners, to the detriment of smaller institutions that are part of the credit card associations.
Kelly Presta, vice president of Visa USA, said in a statement that the company was "dismayed that the court has seen fit to change the structure of the business with untested remedies and unknown consequences."
He said Visa was still reviewing the decision and had not determined what legal steps to take next.
The ruling by Jones came after she heard evidence for 34 days between June 12, 2000, and Aug. 22, 2000. She said she reviewed more than 6,000 pages of trial testimony, volumes of deposition testimony and approximately 6,000 exhibits and briefs from American Express and Discover, among others.
Chenault told Jones during his testimony that American Express blossomed after issuing its first charge card in 1958, only to bungle its dominant position later through bad moves.
"We were losing relevance with our customers," he said at one point. "We were trying to be all things to all people with a few products."
Once American Express had realized its mistakes, it found it was unfairly blocked from dealing with banks, he said.
"Banks were not actively pushing our products," he testified. "It became very clear to me that the partnership with banks was incredibly powerful."
