NAC sues MasterCard, Visa alleging antitrust

The newly formed National ATM Council Inc. filed a proposed class action lawsuit in the Federal District Court for the District of Columbia Oct. 12, 2011, against Visa Inc. and MasterCard Worldwide.

The suit alleges the card companies' network rules prevent ATM owners from offering lower prices for transactions on PIN-debit networks not affiliated with either MasterCard or Visa. It also alleges the rules limit ATM operators' earnings and are a violation of the Sherman Act's prohibition of restraint of trade.

The NAC was formed in September 2011 when the National Association of ATM ISOs and Operators and the Alliance of Specialized Communications Providers merged "to better represent the interests of the nation's independent ATM operators." According to the NAC, 400,000 ATMs are in use in the United States, and more will be deployed if the council wins its class action suit.

Parties to the suit

The NAC is joined in the suit by more than a dozen independent ATM operators. The lawsuit, titled The National ATM Council Inc. et al., v. Visa Inc., et al. (No. 1:11-cv-01803), challenges the uniform agreement Visa and MasterCard hold and enforce among "nearly every payment card-issuing bank in the United States."

The plaintiffs allege the uniform agreement allows the card companies to fix prices for ATM services, suppress competition among ATM networks and prevent operators from setting lower prices for their services.

The ATM operators claim Visa and MasterCard rules allow them to charge an access fee to PIN-debit card holders using their services but only if the fee matches fees charged by Visa and MasterCard – regardless of whether the transaction is processed over a Visa or MasterCard network or an independent network. The operators maintain the Visa and MasterCard networks are often more expensive to use, but operators are prohibited from discounting services on independent networks.

"Visa and MasterCard are the ringleaders, organizers, and enforcers of a conspiracy among U.S. banks to fix the price of ATM access fees in order to keep the competition at bay," NAC Attorney Jonathan Rubin said. "Were it not for these anticompetitive rules, Visa and MasterCard would face real competition for ATM services, consumers would pay lower prices for using ATMs, and more ATMs would be deployed."

Allegations

Specifically the suit alleges, "The violation in this case is a horizontal agreement among every bank that issues Visa- or MasterCard-branded payment cards – including every principal U.S. bank – organized and supervised by the defendants as ringleaders and enforcers for the purpose of fixing the surcharge that consumers pay for ATM services."

The plaintiffs pointed out that Visa and MasterCard set the terms for how their cards can be used in ATM transactions and how the operators may access the Visa and MasterCard PIN-debit networks. The operators allege this has led to card companies misusing their power to fix access fees "without regard to any cost saving to the ATM operator of obtaining service from one of the alternative PIN-based networks."

The lawsuit additionally alleges, "The ATM restraints result in supra-competitive prices for ATM services and duplicative and exploitative foreign ATM fees that inflate the retail price of ATM services and discourage consumers from consuming them, lowering output and artificially constraining growth in ATM deployment. But for the ATM restraints, retail prices for ATM services would be lower, the quantity of ATM services demanded would be greater and economic output would increase."

In addition to relief the suit asks for a decree eliminating the ATM restraints and awarding the class triple damages.

A known problem

Rubin said the antitrust action was one of a series of common issues that brought about the merger to form the NAC. He added that he believes the antitrust issue was studied by the U.S. Department of Justice.

"It was a known problem," Rubin said. "Both the associations and NAC have been on top of this issue for more than a year, and they weren't optimistic about resolving it. We believe we need to get rid of a rule that that tells us we can't price what we want to price our services. Nobody knows what a truly competitive market would look like or what the broad-based benefit would be."

Rubin said his clients would like the opportunity to build their brands and customer loyalty. They will leave it up to an economist to determine "how much of a surplus belonging to the ATM operators moved to Visa/MasterCard."

A spokesman for Visa and a spokesman for MasterCard both declined to comment on the suit.

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