Major Banks, Credit Card Companies Named in Multi-Billion Dollar Antitrust Suit

Five million retailers are going up against Visa (NYSE:V), Mastercard (NYSE:MA), and 13 large banks in a private antitrust suit that could deliver a multi-billion dollar settlement in the coming months.

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Bank of America (NYSE:BAC), Citigroup (NYSE:C), Capital One (NYSE:COF), JPMorgan (NYSE:JPM), U.S. Bancorp (NYSE:USB), Wells Fargo (NYSE:WFC), PNC Financial (NYSE:PNC), Fifth Third Bancorp (NASDAQ:FITB), SunTrust Banks (NYSE:STI), HSBC (NYSE:HBC), and Barclays Plc (NYSE:BCS) are all named as defendants in the suit over the 2 percent “interchange” fees banks and card companies charge retailers on credit card transactions.

The potential cost of as settlement could range from a few billion dollars into the hundreds of billions, while a judge’s ruling could also force banks and card companies to reduce their 2 percent interchange fees to as low as 0.5 percent, the impact of which would be several times more costly than the Durbin Amendment, highly contested legislation that placed a cap on debit card fees.

Deutsche Bank (NYSE:DB) analyst Matt O’Connor estimates that reducing credit card interchange fees by 75 percent would cost U.S. Bancorp about $1.2 billion in foregone revenue this year alone, four times what he estimates the Durbin Amendment will cost the bank. For JPMorgan, the estimated cost of reducing credit card interchange fees would be five times that lost to Durbin.

The case will be heard by Judge John Gleeson of the U.S. Eastern District and is set to go to trial on September 12. Gleeson ruled in favor of the plaintiff in what is thought to be the largest antitrust settlement in history — a 1996 class action lawsuit led by Wal-Mart (NYSE:WMT) and Limited Brands (NYSE:LTD) against Visa and MasterCard. The settlement in that case cost the card companies $3 billion in monetary damages and more than $25 billion in lost revenue due to changes in business practices.

The current case, if it goes forward, is expected to be much more expensive to Visa and MasterCard than was the Wal-Mart case. Plaintiffs in the suit argue that the banks and card companies illegally colluded to charge fees for credit card transactions that are far higher than an open, competitive market would dictate.

The plaintiffs claim that banks spun off MasterCard and Visa through initial public offerings in 2006 and 2006 in an effort to avoid the appearance of a monopoly. They are seeking compensation “for the fullest time period permitted” by statutes of limitations, according to court filings. They also request defendants be found in violation of antitrust laws and barred from violating those laws in the future, and will likely seek either a fee reduction or new terms to foster competition.

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To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com