NEW YORK -Despite protests from card association lawyers, there is a consensus among other attorneys familiar with credit card anti-trust cases that VISA and MasterCard’s fight with retailers could cost the associations, and other card issuers, their so-called “Honor All Cards” rules. As the name suggests, the Honor All Cards rules require retailers to accept all credit cards branded with the company logo if they agree to accept one. Retailers have sued to outlaw the rule, arguing that it unjustly requires them to take the association’s signature debit cards when they would rather only accept the PIN (personal identification number) based cards. Signature debit cards have interchange rates almost equal to that of credit cards. PIN-based debit cards have significantly less expensive interchange rates. The lawyers, none of whom would speak for the record on the case, say that while the associations might prevail in the move to eliminate, or significantly reduce, money damages should they lose the case, that there is a very good chance that Judge John Gleeson in the U.S. District Court for the Eastern District of New York will void the rule. “The fundamental problem with Honor All Cards is that it appears to restrict the retailer’s choice,” said one attorney who didn’t want to comment for the record. “If signature debit cards are popular enough to make it in the marketplace, retailers will take them. The Honor All Cards requirement is probably history.” Card association lawyers have argued that the Honor All Cards rules actually furthers competition by ensuring that the customer has the broadest choice of payment options possible. The speculation about what Judge Gleeson could do has increased since the court unsealed the documents involved in the case, in response to a motion filed by news organizations tracking the fight. The documents contained a number of interesting revelations about the case. Interestingly, even as MasterCard has maintained that it would win the case, its documents argued that it could not be considered to have had monopoly power over the card market since it is the significantly smaller association. According to published media accounts, MasterCard argued that its lack of market power in either the credit or debit card markets means it cannot be guilty of the alleged antitrust violations. The MasterCard filing cited the retailers’ economist, Franklin Fisher, who said that MasterCard has a 33% to 36% share of the general-purpose credit card market, compared with Visa’s 56% to 60% share. The economist also said that in the combined credit and charge card market, MasterCard has a 26% to 28% share, compared with Visa’s 43% to 47% and Amex’s 19% to 23%. Several of the lawyers commented that one reason they felt the judge might limit or eliminate the damages that the card associations would have to pay if they lost was that a similar scheme for calculating damages, also developed by Fisher, was rejected recently by a U.S. District Court in California. The lawyers also noted the retailers’ case could be a victim of the card market’s changing dynamics. They noted that the retailers original complaint, filed in 1996, had argued that the Honor All Cards rules would force the networks that process the PIN-based transactions out of business. “But clearly those operations are thriving,” noted one lawyer who agreed with VISA’s observation that many of these networks, which had traditionally been primarily regional, have gone effectively national. CO-Op Network, which also processes PIN-based transactions, has also thrived in the last two years, despite retailers having an honor all cards rule. The contending parties are expected to file supplementary briefs for the case before Judge Gleeson on September 20. Association lawyers have said that their briefs will include updated information about the card and electronic payment markets. [email protected]

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