A federal judge has approved a settlement between the Department of Justice (DOJ), seventeen states, and payment card networks Visa and MasterCard for alleged antitrust violations pursuant to Section 1 of the Sherman Act.1 The complaint stemmed from the networks’ long-standing rules (so-called “anti-steering rules”) prohibiting merchants generally from (1) preferring one form of payment over others or (2) offering rebates or discounts to purchasers for using certain forms of payment. The settlement was proposed on October 4, 2010 and was approved last week. Under the DOJ’s theory of the case, restraints on retailers by the payment networks impose a competitive burden on merchants, restricting decisions to offer discounts, benefits and customer choice. Visa and MasterCard will not be required to make any monetary payments as part of the settlement.
As part of the consent order2 (the Consent Decree), Visa and MasterCard (and “all other Persons in active concert or participation with any of them”)3 have agreed not to adopt or enforce any Rule or other agreement that would prohibit a merchant from: (1) offering a discount or rebate to a customer for using a particular brand or type of credit card or a particular form of payment (each, a Payment Type); (2) offering a free or discounted product for use of a particular Payment Type; (3) offering a free, discounted, or enhanced service for use of a particular Payment Type; (4) offering an incentive or other benefit for use of a particular Payment Type; (5) expressing a preference of Payment Type; (6) promoting a particular Payment Type (such as a sign expressing a preference using varied size or prominence for different Payment Types); (7) communicating the costs of a Payment Type or cost relative to other Payment Types; or (8) doing the substantial equivalent of any of the above (collectively, the Payment Type Preferences).
The concessions described above can be grouped into two categories. Under the first category, the merchant may use an incentive to entice customers to use a particular form of payment (such as cash, check, or credit), brand of credit card (such as a Visa instead of an American Express card), or type of card (such as a low-cost card rather than a rewards or premium card). Under the second category, the merchant may communicate or advocate for a particular Payment Type by expressing a preference for particular types of payment or providing the consumer with information regarding the costs to the merchant of a credit, as opposed to a debit, transaction (or, for instance, a Visa rather than a MasterCard transaction). The Consent Decree does not address the merchant’s authority to charge more or provide less services to consumers who pay with disadvantageous Payment Types or to refuse an unpreferred Payment Type.
The Consent Decree requires Visa and MasterCard to modify their merchant rules to reflect the changes in Payment Type Preferences within five business days after entry of the Consent Decree. Under the current Visa and MasterCard rules, the merchant use of Payment Type Preferences, other than discounting for cash or PIN-based debit, was prohibited and could lead to fines or other penalties. The text of the modified merchant Rules is included in the Consent Decree. Although both Visa and MasterCard have stated that they expect the Rule modifications to have little effect on their businesses and services, the implementation of the new Rules and communicating the Rules to merchants could require a substantial effort on the part of both brands. Under the new merchant Rules, a merchant may expressly request or encourage a customer to use another form of payment or another brand or type of card than the card that the customer initially presented for payment.
In addition, the Consent Decree specifies card brand activities that would not violate the merchant specifications listed above, such as (1) agreements by which merchants agree to accept only Visa or MasterCard, (2) agreements whereby merchants promote co-branded or affinity cards (such as an Ann Taylor MasterCard or a U.S. Airways Visa card), or (3) individually negotiated one-off agreements providing that merchants will encourage customers to use the Visa or MasterCard brand and will not use the Payment Type Preferences described above.4 Visa/MasterCard may continue to enforce restraints in existing agreements only to the extent that the existing agreements comply with the specific scenarios described above.
The DOJ has terminated its case against Visa and MasterCard except for the administration and enforcement of the Consent Decree. Notably, American Express has elected not to enter into the Consent Decree and is instead defending the case against it. From an antitrust perspective, the DOJ case against American Express is distinct in that American Express has approximately twenty-four percent market share of the general purpose credit card business—a smaller market share than either Visa or MasterCard. American Express is defending the lawsuit on the premise that, as a smaller player whose consumers almost always carry other cards in addition to American Express cards, it does not have the market power to steer consumers to use American Express cards.5