On June 7, federal Judge Barbara Jones ruled that Visa U.S.A.'s settlement service fee (SSF) implemented in the wake of the 2003 settlement of a merchant class-action lawsuit was unlawful and must be repealed.
"Visa executives knew, and indeed intended, that the SSF would effectively prevent member banks from switching to MasterCard,'' Judge Jones wrote in her opinion.
Visa levied the fee on banks that left its debit card network in order to compel them to cover part of the $2 billion cost of the 2003 settlement. MasterCard argued the fee illegally restrained competition by discouraging banks that wanted to switch.
"With this roadblock out of the way, financial institutions will not be deterred by this coercive fee and can make decisions based on their best judgment about quality of service, strength of brand and other competitive factors that benefit their cardholders," stated Noah J. Hanft, MasterCard General Counsel.
In addition to requiring that Visa repeal the SSF, Judge Jones also issued an order allowing all of Visa's top 100 debit issuers (those with Visa debit agreements that were signed while the SSF was in place) to terminate such agreements if they wish to issue debit cards on MasterCard's network.
Furthermore, over the next few months, Visa must notify all issuing financial institutions in the United States of Judge Jones' decision.
Hanft said Visa's intention to put in place a coercive fee to block issuers from making independent brand decisions was unmasked by the court through extensive evidence, including Visa's own internal documents.
Judge Jones, in her opinion, quoted a memo from a Visa Senior Vice President that discussed the benefit of "a formidable exit penalty."
According to Visa Vice President Rosetta Jones, Visa is weighing its legal options, including a possible appeal.
"With the SSF, Visa ensured that Visa members who were recipients of the Visa check card revenue challenged in the 'Wal-Mart' lawsuit did not leave a disproportionate burden to other debit issuers by shifting their debit volume away from Visa without paying their share of the settlement," Rosetta Jones noted.
She added that since Visa enacted the SSF, competition for debit card issuance has remained vibrant. "Debit wins by MasterCard demonstrate that Visa's SSF has not prevented members from issuing MasterCard debit cards," she stated.
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