In response to a guidance the Federal Reserve issued in early November, Visa announced that it will halt steering practices through which the company turns consumers toward its network on point-of-sale terminals using EMV (Europay, MasterCard, Visa) technology.
The Federal Reserve stated that such steering practices violate merchants’ right to competition. In a new addition to its Frequently Asked Questions section on Regulation II (debit card interchange fees and routing), the Fed answered whether a payment card network was in compliance with Section 235.7 of Regulation II if it required a merchant to allow the cardholder to choose EMV chip application, but routes one of the choices to only a single network.
“No,” the Fed began. “A payment card network inhibits a merchant’s ability to route electronic debit card transactions if it, by network rules, standards, specifications, contractual agreements, or otherwise, requires the merchant to allow the cardholder to make the choice of EMV chip application on a debit card, where one application routes only to a single network. Such a requirement is not compliant with section 235.7 of Regulation II because it prevents the merchant from directing the routing of electronic debit transactions.”
The National Retail Federation initially called upon Visa to cease using EMW technology to steer consumers to its processing network in October. EMW is a global standard for cards equipped with computer chips and the technology used to authenticate chip-card transactions, which was implemented “in the wake of numerous large-scale data breaches and increasing rates of counterfeit card fraud, U.S. card issuers are migrating to this new technology to protect consumers and reduce the costs of fraud,” according to creditcards.com.
The Federal Trade Commission (FTC) joined the U.S. Department of Justice’s Antitrust Division in anamicusbrief, filed in October by the Solicitor General, regarding two cases pending before the U.S. Supreme Court: Visa Inc., et al. v. OsbornandVisa Inc., et al. v. Stoumbos, Nos. 15-961 and 15-962, according to an FTC press release. The brief urges the court to “affirm the U.S. Court of Appeals for the District of Columbia Circuit, which held that the plaintiffs’ complaints adequately alleged an agreement among Visa and MasterCard’s member banks and reversed a district court ruling holding otherwise.”
Both cases concern access fee rules adopted by Visa and MasterCard, which were owned and operated as joint ventures of retail banks at the time. The amicus states that “the rules prevent ATM operators from using differential pricing to encourage consumers to use cards that can access lower-cost networks.” There are three putative class-action complaints in question, claiming collusion under Section 1 of the Sherman Act.
“Section 1 of the Sherman Act, 15 U.S.C. 1, prohibits concerted action that unreasonably restrains trade,” the amicus states. “These consolidated cases arise from complaints alleging that two associations of competing retail banks unreasonably restrained trade by adopting rules governing fees that member banks charge consumers who use their automated teller machines (ATMs). The only issue before this court is the threshold question whether the complaints adequately pleaded facts establishing that the associations’ rules are concerted action subject to review for reasonableness under Section 1.”
The amicus later states: “Respondents allege that the access fee rules restrain competition in the market for ATM services by preventing operators from offering ‘discounted access fees for cards linked to lower-cost ATM networks’ — a form of competition that would allegedly create ‘downward pressure on access fees generally.’ Respondents further allege that the rules ‘protect banks from competition with each other over the types of bugs offered on bank cards’ because the absence of differential access fees means that consumers have no reason to demand cards linked to lower-cost networks. And respondents allege that the lack of incentives for consumers to request or use those cards insulates Visa and MasterCard from ‘competition with other networks,’ allowing them to ‘charge supra-competitive network services fees with impunity.’ ”
The FTC states that “Under the Supreme Court’s 2010 decision in American Needle, Inc. v. National Football League, a Section 1 contract, combination, or conspiracy must be (a) an agreement (b) between two or more entities capable of engaging in concerted action. The United States’ amicus brief argues that the allegations in plaintiffs’ complaints satisfy both of those requirements because the access fee rules are written rules adopted by associations of competitors to govern the prices charged in the competitors’ separate businesses.”