JANUARY 2004

Debit Card Litigation Resolved

According to the article in the New York Times by Jennifer Bayot, the nation’s retailers have finally been notified of the approval of a $3 billion settlement with VISA USA and MasterCard International. The agreement that was reached after six years also calls for a reduction by the card issuers of certain transaction fees. The suit alleged that the two card issuers used their dominance in the market to force retailers to accept their debit cards as well as their credit cards, even though less costly alternatives were available in the market. The agreement provides that a retailer who accepts the Visa or MasterCard credit card will not be required to accept those firms’ debit cards as well (i.e., it invalidates the associations’ "honor-all-cards rule"). Likewise, a retailer that accepts those firms’ debit cards cannot be required to also accept their credit cards. Essentially, there can be no tie-in arrangements required by Visa or MasterCard. Wal-Mart has announced that, beginning in February, customers who wish to use their MasterCard debit card can do so only if they enter their personal identification number (PIN) in the terminal. While that may be useful for identification, use of the PIN allows the retailer to pay MasterCard a lower fee.

There are other winners. Jathon Sapsford reports in the Wall Street Journal that the lawyers representing the merchants will receive about $220 million in fees. This was about a third of what the lawyers had requested.