The Department of Justice on Tuesday filed a federal antitrust lawsuit against Visa (V), accusing the company of illegally using the size of its vast card-processing network to stifle competition.
Visa owns and controls the largest debit card processing network in the United States, processing more than 60 percent of the nation’s debit card transactions.
According to the DOJ, Visa leveraged its ecosystem of consumers, banks and retailers to penalize retailers that chose to use a different debit network.
“Taken together, Visa’s coordinated efforts to limit competition in debit transactions have resulted in significant additional fees being imposed on American consumers and businesses and slowed innovation in the debit payments ecosystem,” the lawsuit states.
This illustration taken on August 2, 2022 shows Visa credit and debit cards. (REUTERS/Benoit Tessier/File Photo) (REUTERS/Reuters)
According to the Justice Department, Visa created a “web of contracts” with major banks and retailers that required retailers to either choose Visa’s network or pay Visa high fees on sales transactions.
Visa’s debit card processing fees are expected to bring in $7 billion in revenue for the company in 2022. Visa shares fell more than 5% on Tuesday.
U.S. Attorney General Merrick Garland said Visa’s illegal conduct prevented potential rivals, particularly fintech companies like Square’s CashApp, from entering the debit card processing market.
“Visa is the first name many debit card users see when they make a purchase, but they don’t understand the role Visa plays behind the scenes,” Garland said.
“It controls a complex network of merchants, financial institutions and consumers, and imposes hidden tolls on every trillions of transactions, costing American consumers and businesses billions of dollars a year.”
Specifically, the Department of Justice alleged that Visa had unlawfully maintained monopolies in two markets: the market for debit network services, which are used to withdraw funds directly from consumers’ bank accounts, and the market for non-card-based debit network services.
The latter is a narrower market within a broader services market that includes traditional debit card transactions as well as fintech transactions.
Attorney General Merrick Garland (center) is flanked by Principal Deputy Attorney General Doha Mekki (left) and Principal Deputy Assistant Attorney General Benjamin Mizer (right) during a press conference on Tuesday (AP Photo/Mark Schiefelbein) (AP)
Visa general counsel Julie Rottenberg responded to the lawsuit by saying it ignores Visa’s “many competitors” in the growing debit card industry.
“If you’ve ever bought something online or checked out in a store, you know that more and more companies are offering new ways to pay for goods and services,” Rottenberg said.
Alden Abbott, a fellow at the Marketas Center and former general counsel at the Federal Trade Commission, said the Visa case is unique among antitrust cases because Dodd-Frank caps debit card fees.
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Abbott said any antitrust analysis of the Visa deal should take into account the impact of the law because it prevented competitors from entering the market, weakened competitors that existed at the time and likely led to fewer poor Americans having debit cards.
“It is certainly possible that Visa’s growing debit card market share is the result of this statutory price cap and not the result of Visa’s anticompetitive conduct,” Abbott said.
The Department of Justice is asking the U.S. District Court in Manhattan to enjoin Visa from using the allegedly harmful contracts and from bundling its debit network services with credit services or credit incentives.
It also asked the court to stop Visa from imposing price incentives on the use of its network.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis at Yahoo Finance. Alexis Weed.
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