WASHINGTON – Quietly, in the last six months, lawsuits against Visa and MasterCard have been mounting up across the U.S. as primarily retailers take the card brands to court over what they claim are excessive interchange rates and illegal methods of setting them. While none of the cases involve credit unions directly they nonetheless may have significant impact on whether and how, as well as how much, money CUs make on their credit and debit cards in the long term. According to the Food Marketing Institute, a research center which works on behalf of more than 1,500 food retailers and wholesalers and which itself has filed legal briefs against Visa, there are more than 40 lawsuits against one or both card brands over interchange and how it is set, most filed in the last six months. "Retailers believe that interchange rates are far too high and that they are set in ways that are anti-competitive and not transparent," complained Bill Greer, spokesman for the FMI. "Generally, as the volume of transactions has continued to rise the price per transaction should go down. But we are not seeing that. Interchange rates are steadily going up." Now, in one sense, this is not new. Retailers have been complaining about the way Visa and MasterCard set interchange rates for years. But legal and antirust experts say that what is different now is that Visa and MasterCard's recent legal losses have the card brands more vulnerable than ever before on legal grounds. Within the last three years, the card brands have lost cases involving American Express and Discover, where the courts found against the card brands' ban on issuers offering other card brands. Visa and MasterCard also had to settle with Wal-Mart and other retailers over debit interchange. Some changes have already begun to come about. MasterCard has organized itself as a corporation and conducts business now more along corporate than association lines. Visa has announced that it is restructuring its board and that, in the future, eight board members who are not associated with any of Visa's financial institutions, and may include retail representatives, will set interchange rates. But it is unclear whether this and similar changes will be enough. Greer stressed that the FMI does not really have any definite plans for how retailers would like to see the industry changed, only that the retailers want to see more disclosure as to what the exact costs of electronic credit and debit transactions actually are and to have more input into how those rates would be set. "I don't know what exact form the answer will take," Greer said, "but I know that things will have to change." Greer noted, for example, that there may be a role for a federal regulator, such as the Federal Reserve in setting interchange rates. He pointed out that the Federal Reserve had already mandated for years that paper checks be cleared at cost. A similar approach might be used for interchange, he suggested, assuming that the legal situation regarding Visa and MasterCard remains the same. But will it? FMI has filed legal briefs against a move Visa has made in an unrelated case currently before the Supreme Court which has the potential to shift the whole scope of the discussion. In Texaco v. Dagher et al, the Court is being asked to overturn a decision by the Ninth Circuit Court of Appeals that held that Texaco and Shell could not enter into joint ventures and set prices as part of their joint venture business. Texaco is seeking to have joint ventures declared exempt from U.S. anti-trust law and Visa has filed and amicus curiae brief in support of Texaco winning such an exemption, in large part because interchange could be seen in a similar light and a favorable Supreme Court decision would improve its legal position. If the Supreme Court agreed that Texaco and Shell could set prices as part of their joint ventures, Visa believes that it could have a stronger argument for being able to set interchange prices with its financial institution partners. The case is scheduled for oral arguments in January of 2006 and no one will predict how it might come out. David John, banking analyst for the Washington-based Heritage Foundation, a conservative think tank, declined to comment on the Dagher case but took a more relaxed stand toward the number of different lawsuits filed against the card brands. Much of the time, John said, similar lawsuits are filed in order to make sure the plaintiffs have a marker, so to speak, in whatever settlement might be coming from the situation or to help force negotiations. "I think in the end that a lot of these cases are going to be settled more from negotiation than from litigation," John said. -

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