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Below is an article taken from American Banker. Do you think the suit has merit? I don't - the spirit behind antitrust laws is CUSTOMER CHOICE, and this suit seeks to take away choice.

(I apologize for the length of this post.)

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The Supreme Court's decision Monday not to hear Visa U.S.A. and MasterCard International's appeal of the class-action status of the merchant plaintiffs in the Wal-Mart debit card lawsuit has cleared the way for a trial on the case's merits.

If the merchants win, the high damages they are seeking could force Visa and MasterCard into bankruptcy, industry experts say.

Lloyd Constantine, the merchants' lead counsel, said that the next step for his side will be to notify all four million merchants that qualify under the class designation and give them the chance to opt out of the case.

Then both sides must argue in favor of their proposed summary judgments, which could narrow the scope of the trial by removing any agreed-upon points, and a start date must be set, he said. A judge will probably set the start date for between December and February, Mr. Constantine speculated.

In deciding not to hear the appeal, the high court endorsed the majority opinion of the U.S. Court of Appeals for the Second Circuit, which had approved the class in a 2-to-1 vote.

Lawyers for Visa and MasterCard pointed out Monday that the Supreme Court's decision did not speak to the merits of the case, which was originally filed in 1996 by Wal-Mart Stores Inc. and other retailers.

The plaintiffs take issue with the higher fees they are charged for accepting Visa and MasterCard signature debit cards than they do for PIN debit, and are seeking permission to take Visa and MasterCard credit cards only, a practice currently barred under the associations' "honor all cards" rule.

Visa and MasterCard had argued that such a large class of plaintiffs was unwieldy.

In a press statement, Noah J. Hanft, MasterCard's general counsel, said he was disappointed by the Supreme Court's decision. He cited a recent op-ed piece in The Wall Street Journal by American Enterprise Institute fellow James Glassman, who argued that if the Supreme Court refused to hear the case, class actions, "already a virus spreading through the U.S. economy, could become an uncontrollable plague" that would ultimately cost consumers money.

"Visa's 'honor all cards' commitment is the linchpin to creating choice and convenience for cardholders and merchants alike," the company said in a press statement. "As this case moves forward, we look forward to addressing the merits and other important matters with the court."

According to Richard X. Bove, an analyst at Hoefer & Arnett Inc., at least one major bank card issuer - Bank of America Corp. - has said it would not pony up its share of the damages. "Basically, it is Bank of America's belief that if Visa or MasterCard were to lose their suits, they would go bankrupt, and therefore the matter would end at that point," he said.

Mr. Bove also said that executives at Bank One Corp. would not comment on its potential liability.

In an April speech at a card industry conference, Mr. Constantine said much the same. "Sane and sensible companies in Visa and MasterCard's situation would have settled this case long before it turned into their dance of death."
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VISA and MasterCard have engaged in many anti-competitive actions, in part because they are actually chartered as nonprofit organizations. You heard me right, VISA and MasterCard are considered nonprofit entities which serve the interests of their member financial institutions (this is similar to the nonprofit status of the National Football League, Major League Baseball, etc.)

They may be nonprofit, but that doesn't mean they are "charitable" or pro-consumer. VISA and MasterCard funnel off a lot of revenue from transaction fees and from pandering to the politics of the bigger member financial institutions.
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I don't understand. If Walmart won't take my debit card with the VISA logo on it, I have to start writing paper checks. I can do that, but it seems like it would be rather costly for the merchants if everyone went back to writing checks for everything. Or maybe I'm just confused.

(Or maybe they'd rather I run up purchases on the Walmart Store card... hmmm)

AirTheSkeptic, skeptically
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I don't understand. If Walmart won't take my debit card with the VISA logo on it, I have to start writing paper checks. I can do that, but it seems like it would be rather costly for the merchants if everyone went back to writing checks for everything. Or maybe I'm just confused.

(Or maybe they'd rather I run up purchases on the Walmart Store card... hmmm)



Yes, either the Walmart store card, or a regular Visa card that doesn't have as high of fees associated with it.
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The interchange fees for a Check Card are the same as those for a credit card; they are not higher. Wal-mart's beef is that processing a Check Card transaction shouldn't cost as much because there is no "risk" associated with it; in other words, it's money that is already there (checking account) as opposed to a "loan" (credit card).

However, as far as Wal-mart is concerned, it should make absolutely no difference, because the money is GUARANTEED, whether the money is in the person's checking account or not.

Also, just because there is "no risk" associated with a Check Card transaction, that doesn't mean that it costs any less to process the transaction.
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Do you think the suit has merit? I don't - the spirit behind antitrust laws is CUSTOMER CHOICE, and this suit seeks to take away choice.

You have to remember who the customer is. In this case, the merchant is the "customer" of Visa/Mastercard's transaction processing services.

The situation is somewhat similar to a suit that one of the computer makers filed a few years back against Microsoft, that alleged that Microsoft was requiring that if computer makers wanted to pre-install Windows operating system software, they also had to pre-install Microsoft Internet Explorer. In the same way that Microsoft was trying to leverage its dominant position in OS software to the browser arena, Visa/Mastercard is trying to leverage its dominant position in credit card clearing services to build a better position in debit card services, to the detriment of all kinds of businesses.

The class action allows the suit to include all kinds of small businesses that otherwise couldn't afford to participate. Without the class, Visa/Mastercard would settle with the big players like Walmart and leave the small businesses in the dust.

If this suit were not available, one possible response by merchants would be to boycott Visa/Mastercard, the same way that many restaurants boycotted American Express a while ago because their fees were higher than other cards. That would have a far greater impact on customer choice than this suit.

The idea that Visa/Mastercard would declare bankruptcy is absolutely ridiculous, unless the bankruptcy would allow them to restructure in such a way as to make an adverse judgment meaningless.

dan
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VISA and MasterCard want to eliminate competing PIN-based debit purchase systems, gaining the leverage for even greater pricing power out of every single purchase transaction.

Most merchants prefer that customers use a PIN-based debit system because the per-transaction processing fee is about one-half the fee charged by VISA and MasterCard (the "nonprofit" entities). No credit is extended to the customer.

The US is one of the few countries in the industrialized world which lacks a truly nationwide PIN-based debit purchase system as an alternative to the VISA/MasterCard duopoly. Europe and Canada both have lower-cost PIN-based debit purchase systems which are almost universally accepted at merchants, as a viable alternative to VISA/Mastercard.

Make no mistake - VISA and MasterCard behave as a monopoly and seek to gain monopoly-like pricing power as "nonprofit" organizations serving the interests of their for-profit bank members.
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I strongly disagree with you. VISA, Mastercard, and Wal-mart are all corporations seeking to provide we the consumers with certain services. The spirit behind antitrust laws is consumer choice, and WE are the consumers - WE THE CUSTOMERS/CONSUMERS are what drives antitrust issues. Antitrust issues were not meant to protect the large corporations (look at AT&T in 1984) - they were meant to protect US FROM the corporations.
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Also, just because there is "no risk" associated with a Check Card transaction, that doesn't mean that it costs any less to process the transaction.

If there is no risk in issuing Check Cards...then why did I have go through a credit check inorder to get one. When I first moved to the United States...I was declined a Check Card, because I had no credit history (though I got one about 3 months later).

And, I was thinking that after I pay off all my credit cards..that I might opt for using my check card for everything (except for online transactions, since I've already had the false online charges on a previous check card).

Actually, there is also risk to Visa....VISA offers the same level of protection against fraud on check cards as regular cards....except that until you call Visa the money is already missing from your account, and they can't seem to block false recurring charges (other than cancelling and reissuing). Don't know about Mastercard, have never had one of their check cards.

The Dreamer.
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The idea that Visa/Mastercard would declare bankruptcy is absolutely ridiculous, unless the bankruptcy would allow them to restructure in such a way as to make an adverse judgment meaningless.


You mean like raise the transaction fees for credit card purchases, while keeping transaction fees for check card purchases at the current rate?

The Dreamer.
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Here are some news articles - it should be noted that the U.S. Supreme Court refused to hear the appeal by VISA and MasterCard, the case has been sent back to U.S. District Court in Brooklyn for more fighting. The case was Visa vs. Wal-Mart, 01-1464 - and to correct some who are MISINFORMED, the plaintiffs in the appeal are VISA and MasterCard.

I agree with the merchants' attorney, Lloyd Constantine, who stated: "The debit- and credit-card cartel has stalled the judicial process every step of the way, squeezing every last penny of their hidden tax on consumers until the day they know is coming -- when the courts order this policy stopped."

http://story.news.yahoo.com/news?tmpl=story&u=/nm/20020610/bs_nm/court_financial_dc_6

Another article:
http://story.news.yahoo.com/news?tmpl=story&u=/dowjones/20020610/bs_dowjones/supreme_court_rejects_visa__mastercard_class_action_appeal
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I agree with the merchants' attorney, Lloyd Constantine, who stated: "The debit- and credit-card cartel has stalled the judicial process every step of the way, squeezing every last penny of their hidden tax on
consumers until the day they know is coming -- when the courts order this policy stopped."


Here's why I'm on Visa and Mastercard's side:

When I use a credit card, the merchant pays a fee in the 1 or 2 percent range, and they're contractually obligated to charge the same whether I'm paying cash or credit.

When I use a debit card with a PIN:

* My bank hits me for a fee of about $1.

* The merchant often hits me for a fee of between $0.35 and $2.00

I don't like paying these fees. Would prices on many items be 1 or 2 percent less if credit cards didn't charge that fee? Perhaps, but that aspect of the picture isn't going to change. I just hate paying these fees that everyone wants to line up to assess when I elect to type in my PIN number.

-- Mark
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GoCowboys said:

I strongly disagree with you. ... The spirit behind antitrust laws is consumer choice, and WE are the consumers - WE THE CUSTOMERS/CONSUMERS are what drives antitrust issues. Antitrust issues were not meant to protect the large corporations (look at AT&T in 1984) - they were meant to protect US FROM the corporations.

You're focusing on Wal-Mart as a representative member of the class action. Wal-Mart is not representative. On their own, Wal-Mart has the power to get what it wants. I assure you, if the class action is denied, then Wal-Mart will quietly settle and get most of what it wants, while small businesses and their customers will get the shaft. The class action is the only way that small businesses, which the antitrust laws intend to protect from large businesses, will get to come along for the ride.

Azotic said:

I don't like paying these fees. Would prices on many items be 1 or 2 percent less if credit cards didn't charge that fee? Perhaps, but that aspect of the picture isn't going to change. I just hate paying these fees that everyone wants to line up to assess when I elect to type in my PIN number.

Then don't type in your PIN number. :)

Seriously though, the way for customers to voice their unhappiness about fees is to boycott the services that charge them. I have gone well out of my way to find a credit card that won't charge me extra fees on my foreign currency purchases. I have refused to pay monthly fees for checking accounts. In some cities, this is very difficult, but there's usually a way.

You certainly can't expect Visa/Mastercard to change its policies based on customer complaints if the customer keeps using the service. Consumers have to put their money where their mouth is and seek out services that give them the value they want.

dan
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I'd said:

I don't like paying these fees. Would prices on many items be 1 or 2 percent less if credit cards didn't charge that fee? Perhaps, but that aspect of the picture isn't going to change. I just hate paying these fees that everyone wants to line up to assess when I elect to type in my PIN number.

And galagan said:

Then don't type in your PIN number. :)

But that's the point... the merchants are suing for the right to force me to do what's cheapest for them, while the banks are using economic pressure to try to get me to do what's most favorable financially for them. If I don't get to use the card, then I may well spend less and Visa/MC get no fees, which isn't good for anyone, except perhaps me. :-)

-- Mark
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Mark,
UGH! I thought my bank was ripping me off for charging 25 cents for pin transactions, this ticked me off as I feel it is the best protection on a debit card. I refuse to use the pin now, and when they call about every 3 months for a "customer satisfaction survey" I let 'em know.

No, I can't change the bank, I use it for my business, the location saves me more than it costs, but I still don't like it.

We're all getting nickeled, dimed, quartered and dollared to death!

Ak, thinking my bank was bad, in the hills north of Fairbanks.
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