In Re Visa Check/mastermoney Antitrust Litigation

In Re Visa Check/MasterMoney Antitrust Litigation

(2003 U.S. Dist. LEXIS 4965)

Background Information

In 1999, a group of retailers^[1] sued Visa and MasterCard for violating Sections 1 and 2 of the Sherman Act.  Visa and MasterCard provide general purpose credit and debit card services to merchants and consumers.

The retailers’ main allegation was that Visa and MasterCard’s Honor All Cards (“HAC”) rule required merchants to accept signature debit^[2] payments if they wanted to accept credit payments.  They argued that HAC foreclosed PIN debit as a potential future competitor to credit, thus helping Visa maintain its monopoly power in credit.  This also helped signature debit fees to remain high, thus increasing merchants’ costs which, they argued, would be passed on to consumers through higher prices.  

PIN debit is a payment method which is processed using the “bugs” on the back of debit cards^[3].  Customers enter their PIN number into a PIN-pad for authorization and the funds are debited out of their checking account in one day or less.  PIN debit transactions are not Visa or MasterCard transactions.  Signature debit is a payment method such as Visa Check or MasterMoney.  Customers sign to authorize a transaction, just like with a credit card, and the funds are debited out of their checking account in 1-7 days.

The HAC rule had been in existence at Visa since operations began in 1975.  The rule states that if a merchant accepts one Visa payment method it must accept all Visa payment methods.  The merchants argued that this was a de facto tie because they all want to accept Visa credit, but not all want to accept Visa signature debit.  HAC did not exclude PIN debit from being offered at the point of sale.  It simply required a merchant to accept Visa signature debit if it accepted Visa credit.  Every Visa merchant is allowed to install PIN-pads and accept PIN debit without penalty.

A few auxiliary rules existed in order to prevent creative merchants from side-stepping the HAC rule.  Merchants must immediately accept the Visa card, could not surcharge Visa transactions^[4], and could not attempt to steer customers to another payment method^[5].  The No-Surcharge rule prevents a merchant from impose a huge surcharges on signature debit transactions so that no one uses it, thus bypassing HAC.  Steering used to be restricted by the credit card companies, but was allowed in 1996 after an earlier lawsuit was filed.  Lastly, merchants are allowed to offer a discount for cash, but they cannot surcharge for Visa.