American Express, Visa and MasterCard in legal quagmire

American Express, Visa and MasterCard in legal quagmire

American Express says it expects to have signed its first US partner bank by the second half of 2004 following the recent decision by the US Court of Appeals to affirm district court judge Barbara Jones' ruling in favour of the government's antitrust lawsuit against Visa and MasterCard.

In a statment, American Express chairman and CEO Kenneth Chenault, says the ruling effectively ends the legal arguments on the merit of this case: "Visa and MasterCard have said they plan to appeal the ruling, but we believe that represents no more than a delaying tactic. Those delays are likely to run for months, not years."

He says the firm is considering the possibility of bringing private legal action against the card associations which have rigorously enforced rules that prevent members banks from issuing rival brands.

"In the meantime, we will be renewing our discussions with banks about establishing network partnership agreements in the US," he says. "There is a strong interest among banks to partner with us in the US just as they have internationally."

Seperately, MasterCard International has filed a motion in Federal Court seeking an injunction blocking enforcement of Visa USA's recently-enacted bylaw creating a so-called 'Settlement Service Fee', which imposes fines on the top 100 Visa issuers if they make a change in brand strategy and reduce their Visa debit volume. The motion was filed after Visa declined to act on a 'cease and desist' letter sent by MasterCard, demanding that it rescind the bylaw.

Visa introduced the fines in an effort to stem a flood of defections from banks in the wake of its $2 billion out-of-court settlement with merchants who had brought a class action lawsuit complaining about the level of debit card fees.

MasterCard General Counsel Noah Hanft, says: "Visa is changing the rules mid-stream and bullying its members so it becomes virtually impossible for them to switch brands. It's like telling airline passengers halfway through a flight that if they want to fly on another carrier any time over the next 10 years, they'll have to pay a huge fee to get off the plane."

"Visa's rule sets up prohibitive fines and contrived exit barriers which sharply limit issuers' options," Hanft continues.

Pointing to his company's 80% share of the debit card market, Visa CEO, Carl Pascarella, has dismissed MasterCard's action as an attempt "to enlist the courts in assisting it in recovering from business missteps dating back more than a decade".

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