AT&T; Credit Card Legal, Experts Assert
Although four major banks filed regulatory complaints last week against the AT&T; Universal Card, legal experts say there is little that the banks could do to keep American Telephone & Telegraph Co. out of their business.
By asking regulators to examine whether the AT&T; offering violates banking and communications laws, the banks reignited the controversy over non-banks’ entering the consumer financial-services business.
Because it is not a bank, AT&T; arranged for affiliates of Synovus Financial Corp., a Columbus, Ga., holding company, to issue and process MasterCard and Visa cards on its behalf.
The companies protesting the deal--BankAmerica Corp., Chase Manhattan Corp., Citicorp and MNC Financial Inc.--argued that AT&T; effectively controls a banking affiliate of Synovus. Such control would violate laws prohibiting industrial companies from owning banks.
But most observers viewed the banks’ complaints as a political tactic that would not prevent AT&T; from continuing its apparently successful credit card venture.
Even if regulators conclude that AT&T; illegally entered the credit card business, the telephone giant could restructure its program, said Michael Bradfield, a former general counsel to the Federal Reserve Board.
The Fed received petitions from the four protesters, as did the Georgia State Banking Department and the Federal Communications Commission.
Three of the banks also filed complaints with the Federal Deposit Insurance Corp.
“There certainly are ways, clearly permitted by law, for a non-banking company like AT&T; to sponsor and administer a credit card program,” said Bradfield, who is now a partner with Jones, Day, Reavis & Pogue in Washington.
The banks object to what they say is AT&T;’s control of Universal Bank--a wholly owned subsidiary of Synovus that issues AT&T;’s MasterCard and Visa cards. AT&T; has contracted to buy most of the program’s credit card receivables.
The banks also question the legality of the 10% discount that cardholders receive on long-distance calls charged to the Universal Card. They view it as an unsanctioned reduction of communications tariffs.
Both MasterCard International and Visa U.S.A.--associations that are owned by card-issuing banks--approved AT&T;’s plans long before the Universal card was launched in March, said Anita Boomstein, a partner with Hughes Hubbard & Reed in New York, who represents AT&T.;
The banks “knew most of the details when they approved it,” she said. “The only conclusion I can make is that they are complaining now because the consumer likes it.”
AT&T; will not reveal how many Universal cards it has issued, but the company is believed to have received some 10-million consumer inquiries.
Boomstein said the Georgia banking department has already concluded that AT&T; is not violating any state banking statutes and therefore does not have to respond to the bankers’ inquiries. AT&T; is now providing additional information to the other regulators involved.
