DOJ antitrust suit over Visa debit card practices ‘Tip of the Iceberg’

By National Retail Federation,

WASHINGTON – The National Retail Federation welcomed a lawsuit announced by the Department of Justice accusing Visa of violating federal antitrust law in its debit card practices but said the card network’s anticompetitive practices go further.

“Visa has blocked competition over both credit cards and debit cards for years to maintain its domination of the payments market and protect the billions of dollars in profits it makes off Main Street merchants and their customers,” NRF Chief Administrative Officer and General Counsel Stephanie Martz said. “The DOJ is taking action on Visa’s debit card practices but that is just the tip of the iceberg. This case is a major step forward in fixing our nation’s broken payments market, but it should not be the last. The courts, Congress and federal agencies each have roles to play in bringing competition to credit and debit cards and putting Main Street ahead of Wall Street.”

The DOJ today announced that it has filed a lawsuit against Visa alleging that some of its practices involving debit cards are anticompetitive and have violated the Sherman Antitrust Act. The DOJ said Visa made exclusive agreements that hindered expansion of competing networks and also blocked efforts by technology companies to enter the market.

Until 2011, Visa and Mastercard debit card transactions could only be processed over their respective networks. But in 2010, Congress passed the Durbin Amendment, which required that debit cards issued by banks with at least $10 billion in assets be able to be processed over at least one unaffiliated network such as NYCE, Star or Shazam in addition to Visa or Mastercard. The competing networks have lower fees and better security, and the law has saved merchants and their customers over $8 billion a year.

The DOJ’s announcement comes as Congress is considering the Credit Card Competition Act, which would expand similar network choice requirements to credit cards. Under the legislation, banks with at least $100 billion in assets would be required to enable credit cards to be processed over at least one unaffiliated network in addition to Visa or Mastercard, much like the Durbin Amendment requirement for debit cards.

Under the legislation, banks would choose which networks to enable but merchants would then chose which to use, resulting in competition over fees, security and service expected to save merchants and their customers over $16 billion a year. Visa and Mastercard currently control over 80% of the credit card market and each centrally sets the “swipe” fees all banks issuing their cards charge to merchants to process transactions. Each also restricts processing of transactions to its own network.

A federal judge this year rejected the proposed settlement of a longstanding antitrust lawsuit over Visa and Mastercard credit card swipe fees after NRF and other groups said the small and temporary reduction offered was inadequate. In addition, the Federal Reserve has proposed reducing the 21-cent per-transaction cap on debit card swipe fees adopted as part of the Durbin Amendment to 14.4 cents, but NRF has said the cap should be 10.5 cents. And the Supreme Court has allowed a North Dakota truck stop to go forward with a law suit claiming the 21-cent cap was set too high.

Debit and credit card swipe fees have doubled over the past decade and reached a record $172 billion last year, according to the Nilson Report. The fees are too high for retailers to absorb and cost the average family over $1,100 a year in higher prices.

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