Complaints Against Visa and MasterCard Dismissed

Economists Ink: A Brief Analysis of Policy and Litigation

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Allison I. Holt is a Senior Economist at EI. She has extensive experience working on price fixing matters and estimating damages resulting from collusive agreements.

The United States District Court for the District of Columbia recently dismissed a case alleging that Visa and MasterCard violated Section 1 of the Sherman Antitrust Act when setting ATM access fee pricing requirements for banks and ATM operators. The judge found that there was no factual support for the plaintiffs’ claims either of the existence of a conspiracy or of anticompetitive effects.

Three separate complaints were brought against Visa and MasterCard. Stoumbos v. Visa and Mackmin v. Visa were brought by consumers who paid access fees for using ATMs. The National ATM Council v. Visa was brought by the National ATM Council (NAC), a trade association, and a group of owners and operators of independent ATMs, ATMs not owned by banks. All three complaints targeted Visa and MasterCard contract provisions that prohibited ATM operators from charging higher fees for transactions on Visa and MasterCard’s networks than the lowest access fees charged on other networks. That is, independent ATMs could not charge consumers using Visa and MasterCard branded bank cards higher transaction fees than they charged consumers using cards from other ATM networks. The complaints argued that these provisions limited competition and prevented ATM operators from offering discounts. Visa and MasterCard claimed that these provisions prevented fees from rising too high.

For there to be a violation of Section 1 of the Sherman Act, there must be both an agreement and a restraint of trade. The three plaintiff groups all alleged an agreement between Visa, MasterCard, and several banks. That allegation was based on statements that prior to Visa and MasterCard’s becoming publicly held entities, they were operated by their member banks, and that the rules being objected to originated when bankcard associations, made up of the same banks, governed the ATM networks. The court found that the contention “that banks used to belong to the bankcard associations does not provide factual support for the conclusion that banks are engaged in a horizontal conspiracy to restrain trade.”

In addition, the court found fault with each of the plaintiffs’ economic arguments concerning anticompetitive effects. The court found three problems with plaintiffs’ arguments: plaintiffs did not accurately describe how fees and costs are apportioned among consumers, ATM operators, and networks; they did not coherently and consistently define a relevant market that was experiencing anticompetitive effects; and they did not show how Visa and MasterCard’s pricing requirements would have increased prices for consumers [Stoumbos and Mackmin] or ATM operators [National ATM Council].

In the view of the court, none of the three complaints provided any data or analysis concerning the costs faced by ATM operators. ATM operators incur no direct costs for using the various networks. Each time a customer uses an ATM, the ATM network receives a fee from the bank that issues the ATM card. The network deducts a portion of that fee and then passes the remainder along to the ATM operator. Plaintiffs argued that but for the provisions in operators’ contracts with Visa and MasterCard, operators could encourage consumers to use lower cost networks by offering discounts or other inducements to consumers. Those inducements would act to pass some of the cost savings on to ATM users. The court did not find a sufficient basis for the plaintiffs’ argument that “the rules create an arrangement, ‘that prohibits discounting, directing consumers to less expensive competitor networks, and other pricing behavior characteristic of a free and competitive market.’” Plaintiffs did not provide any information about the cost of using the Visa or MasterCard network relative to other independent networks. If costs were the same, then there would be no savings to switching to a lower cost network. If Visa and MasterCard networks had higher costs, there was no evidence that any cost savings from switching to a lower cost network would be passed along to consumers.

In addition, the court found that because the Stoumbos and the Mackmin complaints wrongly argued that these agreements increased costs to ATM operators, rather than reduced their revenue, the plaintiffs did not show how consumers might have chosen to use a lower cost network or show that the ATM operators would have passed any savings from using lower cost networks on to consumers. All three plaintiffs claim that the phrase “lower cost networks” actually meant “networks that pay the operators higher fees,” but the court stated that “nothing in the complaints would alert the reader to the fact that plaintiffs are relying upon this novel and unsustainable definition of the term ‘cost’.” The court faulted both consumer plaintiff complaints for not discussing what costs the ATM operators faced and how the alleged agreement prevented ATM operators from offering discounts.

The court also criticized both the Stoumbos and the Mackmin complaints for failing to define the relevant market. The complaints might have alleged that the anticompetitive effects would have taken place in one of two vertically related markets: a market for network services provided to ATM operators or a market for ATM services provided to consumers. That aspect of the allegation, however, was never clarified. Thus, the court found the plaintiffs did not clearly specify whether the competition allegedly prevented by the agreement would be competition between networks or competition between individual ATMs.

Finally, the court faulted the Mackmin plaintiffs for claiming to have been charged an ATM fee at some time, without specifically addressing whether multiple networks were available, whether the ATM cards that the plaintiffs used could be used in multiple networks, or whether those networks were all accessible through the ATM they used. Similarly, in the Stoumbos case, the plaintiff did not demonstrate that she had an ATM card that could have accessed multiple different networks.

The court found a similar lack of factual support for the claims of the third plaintiff group, the NAC and Independent ATM operators. Those plaintiffs failed to address the issue that the allegedly inflated fees were paid by consumers and not independent ATM operators. The court ruling stated, “If ATM operators are required to charge consumers more for ATM transactions than they might absent the access fee rules, the rules tend to benefit operators by increasing their revenue.” Since the NAC complaint provided no information about the costs faced by ATM operators, it was not clear to the court how higher fees charged customers would constitute an antitrust injury to ATM operators. In the view of the court, just as the consumer plaintiffs failed to show an effect on consumers, the operator plaintiffs failed to show an effect on operators.