Wednesday, January 26, 2000

Retailers sue over debit cards


Federated involved in fee protest

The Associated Press and Bloomberg News

        NEW YORK — Wal-Mart, Cincinnati-based Federated Department stores and other large U.S. retailers will seek $8.1 billion in damages from Visa and MasterCard for alleged debit card antitrust violations, according to a newspa per report Tuesday.

        In a lawsuit in U.S. District Court, the retailers accused Visa USA Inc. and MasterCard International of using monopoly power in credit cards to dominate debit cards, forcing them to pay high transaction fees and increase costs to consumers, the Wall Street Journal reported.

        The damage estimate represents alleged overcharges by the credit-card companies since 1992. If the retailers win, the damage award would triple under antitrust law to $24.3 billion.

        The retailers also will seek an injunction to prevent the credit card companies from entering new markets, the Journal reported, citing a letter from one of the defendants' lawyers. Other stores joining in the suit include Sears, Roebuck & Co.; Safeway Stores Inc.; Limited Inc.; and Circuit City Stores Inc.

        U.S. District Judge John Gleeson has set a Nov. 27 trial date and approved a Justice Department request to review evidence with Wal-Mart's law yers. The government last year opened its own probe of the debit card business and has already sued Visa and MasterCard for alleged antitrust violations in the credit-card industry.

        The Wal-Mart suit accuses card issuers of using a monopoly in one market to enter another: tying new debit cards to credit cards and forcing merchants to accept them — and higher fees — in order to continue accepting credit cards. Wal-Mart says the credit card companies then charge retailers processing fees up to five times higher than those charged for traditional bank debit cards.

        Visa and MasterCard deny the allegations.

        Visa said the retailers' primary demand — that they not be forced to accept the debit cards — would “undermine the entire premise on which the Visa system is based.” A Visa spokesman said the “honor all cards” rule challenged in the lawsuit will be found lawful and pro-competitive.

        The lawsuit has been brought as a class-action. But Judge Gleeson has not ruled on a motion by the plaintiffs to certify the case as a class-action. A hearing on the issue is scheduled for Feb 4.

        Lloyd Constantine, lead counsel for the plaintiffs, thinks that it is a “virtual certainty” that Judge Gleeson will certify the class because claims from retailers are so similar.

        But Visa and MasterCard are actively opposing class certification and have filed briefs against it.

       



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