Antitrust Litigation Brought Against Visa, MasterCard for Alleged Price Fixing

Visa, MasterCard and a plethora of large banks are the subject of a new antitrust litigation drawn on the behalf of five million retailers in the country, with potential settlement costs in the tens of billions of dollars.

Central to the lawsuit are claims that these institutions have been setting prices on credit card transactions that fall outside of what would be expected in a truly open and competitive market.

Average interchange fees incurred by credit card transactions hover around 2 percent, but could be dropped as low as half of a percent, which would result is losses projected also in the billions annually.

The Durbin Amendment of the Dodd-Frank Act effectively capped debit card swipe fees as 24 cents per transaction, which caused banks to increase credit card transaction costs to recoup their losses.

The case is scheduled to start on Sept. 12 and will be presided over by Judge John Gleeson of the U.S. Eastern District, a judge that ruled over what is considered the largest antitrust lawsuit in American history. The 1996 class-action lawsuit was led by Wal-Mart Stores and Limited Brands against MasterCard and Visa and resulted in the banks paying $3 billion in damages as well as being forced to change certain business practices conservatively estimated at $25 billion in losses.

Proving price fixing collusion between Visa and MasterCard will be difficult as they have both become publically traded companies in the last six years.

Judge Gleeson will determine in the coming days whether or not the plaintiffs will be considered a class for a case that could significantly alter commerce in the future and could create a ripple effect for banks beyond our borders.

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Posted on Thursday, January 12th, 2012