The Antitrust Wars
Credit card services provide a standard method for consumer lending, such that banks do not need to invent their own. As a result of the efficiency of this model, there are presently a handful of major cards rather than thousands of small programs. Naturally, this situation has caught the attention of antitrust regulators.
Normally, antitrust concerns are raised over fixing prices, but it may also be the case when prices differ, but business practices are so similar that customers are forced to a standard set of terms when buying a specific good from any of an array of suppliers.
There have been three landmark cases in which plaintiffs attempted to leverage antitrust laws to get Visa to change its policies and procedures.
Worthen Bank and Trust vs. Visa
In 1972, Worthen Bank and Trust had signed an exclusive contract with Visa (in which the bank was not allowed to issue other bankcards), but wanted to issue MasterCard because they felt they were losing customers to other banks that could.
The court ruled for Worthen, but the case was overturned on appeal. Even so, the terms of the decision were such that Visa was exempted for very specific conditions.
Visa feared that it may be subject to other such lawsuits, and sought a "business review letter" from the Antitrust Division of the USDoJ, which would be a form of assurance that they wouldn't be subject to further lawsuits for the same reason, but the response was lukewarm, suggesting that preventing members from issuing other cards "would appear to have anticompetitive consequences in almost every situation."
Faced with the prospect of more (expensive) legal battles, Visa relented and repealed its exclusivity clause, enabling banks to issue both MasterCard and Visa.
NaBanco vs. Visa
In June 1979, NaBanco filed suit against Visa, claiming that their interchange agreements (which specified the commission that processing services were permitted to charge merchants for credit card transactions) prevented NaBanco from pricing its services competitively.
The court sided with Visa, primarily because NaBanco failed to demonstrate how the fixed commission system was harmful to consumers. The case was appealed to a circuit court, who again sided with Visa, and eventually to the state supreme court, who declined to hear the case.
Mountain West vs. Visa
Dean Whitter, who had launched the Discover Card, acquired Mountain West Savings and Loan (an insolvent bank) in 1985 with the intent of using it to launch a nationwide Visa card. When the bank requested 1.5 million cards, Visa investigated. When Visa discovered the bank was owned by Dean Whitter, a direct competitor, Visa refused to issue the cards and Mountain West filed suit.
The case was upheld by the trial court, but overturned by the circuit court, as a Visa-Discover joint venture on the basis that the combination would be detrimental to competition, and that Dean Whitter's move circumvented the normal process of review for such joint ventures.
Principles for Antitrust Analysis
The author draws parallels between the credit card industries and franchise operations, in which exclusive arrangements are normal (a bottling plant cannot bottle both Pepsi and Coke, and a franchiser cannot own both a MacDonald's and a Burger King restaurant), suggesting that these cases should never have been heard in court.
It's also worth noting that antitrust legislation is intended to prevent companies from engaging in trade practices that are harmful to the consumer, not to force them into agreements (or void standing agreements) with other businesses.