DoJ Should Have Pushed Harder on Steering Settlements, Some Merchants Say

The U.S. Department of Justice filed court documents Tuesday that move toward completion its challenge of Visa and MasterCard network rules limiting merchants’ ability to steer customer payments toward their preferred forms.

Tuesday’s action is largely procedural as Visa Inc. and MasterCard Inc. announced settlements when the DoJ and seven states sued them last October, although American Express Co., also a defendant, refused to settle. Still, the Visa/MasterCard settlements represent yet another merchant victory over the bank card networks, which lost a fight in Congress last week to delay imminent and draconian cuts in debit card interchange.

The DoJ filed documents filed Tuesday include comments from interested parties about the proposed settlements. They express agreement with the DoJ’s action, but some say the government should have challenged Visa and MasterCard bans on transaction surcharges and forced the networks to make it easier for merchants to identify high-cost rewards credit cards at the point of sale.

Under the October settlements, merchants could offer consumers an immediate discount or rebate or a free or discounted product or service for using a particular card network, a low-cost card within that network, or another form of payment. Merchants also could express a preference for the use of a particular card brand, a low-cost card within that network, or another form of payment. Further, merchants could post notices in their stores or otherwise communicate their payment preferences to customers, and they also could communicate to consumers their acceptance costs for various forms of payment.

“It really to us is a huge, positive first step towards dealing with some of the anti-competitive credit card practices that are still out there,” Liz Garner, director of government relations at the Food Marketing Institute, the supermarket trade group, tells Digital Transactions News.

Visa and MasterCard both declined to comment. AmEx said only that it is continuing to fight the DoJ’s lawsuit.

As required by law, the DoJ solicited comments after reaching its proposed settlements as a condition for final court approval. Six parties responded. “Most of the comments applaud the settlement for lessening the restraints on competition in the general-purpose card industry,” a DoJ summary says. “None of the comments contends that the proposed final judgment is contrary to the public interest or should not be approved by the court.”

But several commentators noted that the proposal does not challenge Visa or MasterCard bans on transaction surcharges to cover the merchants’ card-acceptance costs. “Those rules prevent price transparency at the point of sale as merchants cannot include in the ticket price their cost of accepting payment cards,” says a comment from Miami attorney William J. Blechman, counsel for some retailers that are suing the card networks apart from a separate merchant class action. “The costs to merchants of supplying goods and services vary across payment means and, as a result, customers who pay with cash or less expensive cards subsidize those who pay with more expensive cards (and who, ironically, are often more affluent).”

The DoJ, however, noted what it said about surcharges earlier, which was that while surcharges were not part of the present proceeding, the Department could look at them later if needed. “Nothing in the proposed final judgment would prevent the Antitrust Division from challenging any rule of Visa or MasterCard under the antitrust laws in the future,” the commentary says.

Another commentator, the Retail Industry Leaders Association, said there are now more than 500 million rewards credit cards in issue and “they account for the vast majority of credit card transactions in the U.S.” Such cards cost merchants “substantially more” than other cards to accept, the RILA said. The group applauded the proposed settlement for giving merchants freedom to steer customers away from such cards toward cheaper general-purpose cards. It also praised the settlement for banning Visa and MasterCard from preventing merchant acquirers from giving merchants transaction information about the costs for accepting particular types of cards.

Still, the RILA said the plan doesn’t “require that MasterCard and Visa implement any clear or reliable means to inform merchants of the particular type of general-purpose card being presented by a consumer at the point of sale. Without clear, conspicuous, and uniform means of identifying card types electronically or visually, it is uncertain how merchants will be able to identify such cards and practically take advantage of the rights they are about to receive under the final judgment.”

In its comments, the DoJ said “the issue RILA raises is an important one” and that in response, it talked with Visa and MasterCard about how to better distinguish between cards. The RILA had proposed electronic and visual identifiers. “The [DoJ] learned that Visa offers, and MasterCard will soon offer, such an electronic means to differentiate among card types,” the DoJ’s summary says. “These electronic services address the concern raised by RILA for many merchants.”

The DoJ added, however, that “These services are not a complete solution for merchants as some may require additional terminal programming and coordination with the merchants’ acquiring banks, and the services will not be available during periods when electronic communications among the merchant, the acquiring bank, and Visa or MasterCard are not working.” The DoJ still concluded its proposed settlement was “a sufficient and appropriate” remedy to the competitive issues it identified in its complaint.

Eleven more states have joined the case with the DoJ. The Department will publish the comments and its response to them in the Federal Register before seeking final judgment in U.S. District Court, Brooklyn, N.Y. No date for that action has been set yet.

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