This story was written by Keith Dawson for the Media Unspun email newsletter and is Copyright 2002 by Keith Dawson.
M E D I A   U N S P U N
Court in the Cards for Visa and MasterCard

The Supreme Court yesterday cleared the way for trial on an antitrust lawsuit that will affect millions of companies and hundreds of millions of consumers around the world. No, the Supremes didn't slip in a quick review of the Microsoft case. This one involves a class action of 4 million merchants against Visa and MasterCard.

This case has been on appeal for two years, in litigation for six, and it covers events going back 10 years. The merchants' beef is that the credit card associations force them to accept high-fee debit cards as a condition of being authorized to take Visa or MasterCard. If you've been following the U.S. vs. Microsoft, this practice might sound like illegal "tying" to you. The last two years of legal battling have been over whether the case deserves class-action status. Eight Supreme Court justices declined to hear the case (one justice disqualified himself), meaning that a class-action lawsuit can go forward in Brooklyn, N.Y.

Lots of money is at stake -- many outlets used a figure of $100 billion to characterize the case. According to SFGate, this figure originated in the federal appeals court that upheld the suit's class-action status. The Boston Globe and others reported that the credit card associations used the $100 billion figure in their arguments before the high court. The L.A. Times noted the retailers' argument that the figure was "concocted for its apparent shock value" and included 10 years' savings for the retailers (i.e., forgone profits for the banks).

The Independent pinned down with precision the actual damages the retailers have calculated: "In sworn evidence, the retailers claim they have been overcharged by between $13.1bn and $15.8bn." Depending on who reporters talked to, they gave different accounts of the transaction-level reality of the Visa and MC charges. SFGate talked to one of the plaintiffs, who "estimated that merchants are charged 72 cents for offline debit card transactions through Visa and MasterCard, compared with 34 cents" for online debit cards offered by other outfits. Dow Jones, in a story carried in SmartMoney, reported a wider price disparity: $1.49 per $100 for processing Visa and MasterCard debit cards like credit cards, compared with 9 cents for conventional online debit cards.

The bank associations have been arguing that if the merchants' complaints are aggregated into a class-action suit, it will be hard on them. SFGate quoted a public-interest lawyer on how common that argument is: "It's like there's a macro key on their computer to generate it." The Daily Telegraph quoted the appeals court ruling that affirmed the merchants' right to band together into a 4-million-strong class to take on the banks: "The defendants' predicament is not a product of coercion or blackmail. It is a product of their conduct." - Keith Dawson

Credit card firms lose a key battle (Boston Globe)

High court clears credit antitrust suit

Debit Card Suit Allowed To Continue

Plastic card giants face US court battle (Daily Telegraph)

Visa, MasterCard Rebuffed by High Court in Merchants' Suit (Reuters)

Visa, MasterCard Could Face Huge Damages in Suit (Dow Jones)

US court to hear $47.5bn credit card abuse claim