Durbin Warns Visa, MasterCard on Antitrust Over Fees

Visa Inc. and MasterCard Inc., the world’s biggest payment networks, may raise antitrust concerns if they “collude” with larger banks to block limits on debit- card interchange fees and “frighten” small banks into joining the opposition, U.S. Senator Richard Durbin said.

“If your companies were to coordinate such punitive actions in the same way that you appear to have coordinated your messaging tactics, serious concerns would be raised that you are engaging in an unlawful restraint of trade,” Durbin, the Illinois Democrat and majority whip, said today in a letter to the chief executive officers of San Francisco-based Visa and Purchase, New York-based MasterCard.

Durbin is pushing legislation that empowers the Federal Reserve to impose limits on debit-card interchange or “swipe” fees that merchants pay to accept the cards. Curbing the fees, which average about 1 percent per transaction, could crimp revenue at Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co., the biggest U.S. debit-card issuers.

The Senate voted 64-33 to approve the measure as part of the financial overhaul bill. The proposal becomes law if it survives a bipartisan panel assigned to merge the House and Senate versions of the legislation, and President Barack Obama signs it. Representative Carolyn Maloney, a New York Democrat nominated to participate in the talks, said she expects changes in Durbin’s proposal, without elaborating.

Stock Reaction

Visa, which had climbed 2.4 percent today in New York Stock Exchange composite trading, erased most of its gains and finished with a gain of 29 cents to $73.69. MasterCard increased $2.80, or 1.4 percent, to $207.80.

The two firms are saying they may alter network operating rules and swipe fees for small banks to “frighten” them into opposing the legislation, Durbin said. “I warn you” that such changes might be seen as restraining trade, Durbin said.

Industry groups representing community banks and credit unions said Durbin’s exemption for banks with assets of less than $10 billion failed to win their support because it would make their debit cards more expensive for merchants compared with those issued by the biggest lenders.

“Community banks don’t need Visa or MasterCard to help them recognize the harm this amendment will cause to their institutions and their customers,” said Jason Kratovil, a vice president at the Washington-based Independent Community Bankers Association of America.

Fee Levels

Visa and MasterCard could lower interchange rates for all banks to levels that prompt credit unions and community lenders to “re-evaluate” their ability to issue debit cards, the ICBA and the Credit Union National Association said in a May 12 letter to senators.

“This opposition appears to be based on community banks’ and credit unions’ recognition that the Durbin amendment would turn the economics of the entire payment system on its head with negative consequences for all participants, including consumers,” MasterCard said today in an e-mailed statement from spokesman James Issokson.

The National Association of Federal Credit Unions hasn’t been threatened by Visa and MasterCard and is “not aware” of any threats to its members,” Fred Becker, the group’s president, said today in a statement.

Retail Stores

“The interchange provision will do nothing but add to the bottom line of big-box stores and giant retailers -- all at the expense of consumers and small financial institutions,” Becker said.

Visa spokeswoman Denise Dunckel had no comment.

Durbin, in his letter to Visa CEOJoseph W. Saunders and MasterCard chief Robert W. Selander, sought a pledge from both companies that they wouldn’t “take steps to purposely disadvantage small issuers” if his amendment becomes law.

Earlier this week, Nebraska Treasurer Shane Osborn wrote to lawmakers saying that curbs on debit-card fees could increase costs to taxpayers and harm citizens who receive benefits on prepaid cards. The letter contains a passage almost identical to one on Visa’s website.

“We’ve researched this significantly to try and go out and get information on what’s going on as this thing changes, so we use all types of resources,” Osborn said in an interview today.

To contact the reporter on this story: Peter Eichenbaum in New York at peichenbaum@bloomberg.net

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