U.S. Probes Visa’s Rule Barring Banks From Offering Rival Cards

The Justice Department confirmed Wednesday that it has launched an investigation into Visa USA for preventing banks that issue its cards from offering American Express or other competing cards.

Investigators in the department’s antitrust division recently began a formal probe of restrictions on partnerships between banks and card companies, a spokeswoman said. It comes after a European Union official last month deemed the practice “unacceptable,” leading Visa USA’s parent, Visa International Inc., to back down from such a ban in Europe.

“We’re looking at competitive issues involving the prohibition of certain joint ventures in the credit card industry,” department spokeswoman Gina Talamona said.

Though Talamona declined to name Visa’s ban as the target of the department’s probe, Justice investigators told American Express Co. executives that they are looking into the ban and asked for information from the company, an American Express spokeswoman said.

The investigation is one of the most serious challenges yet to Visa’s 5-year-old policy, which has made it difficult for American Express and Discover card issuer Dean Witter Discover & Co. to sell their products to tens of millions of bank customers who hold Visa cards.

“It wouldn’t surprise me if there would be some action that could come from” the investigation, said Robert McKinley, president of the credit card research firm RAM Research. “I think it does raise some anti-competitive issues.’

The ban has been bitterly opposed by American Express and Dean Witter Discover, which until now haven’t been able to crack the bank market because of the prohibition.

Last month, American Express launched a highly publicized effort to persuade banks to issue its charge and credit cards, but it has yet to announce any takers.

Visa controls about half the $362-billion credit card market, and American Express could reel in added fees if it could go through banks to get to more Visa customers, McKinley said.

The probe should step up the heat on Visa to rescind the ban, just as the European Union comments kept Visa from implementing the rule in Europe, said American Express spokeswoman Nancy Muller. American Express has long tried to get the Justice Department to investigate the practice.

“The pressure to look at the issue in the U.S. is strong,” Muller said. “We have had discussions about this in Washington, and we’re gratified that the Justice Department is looking at it.”

Dean Witter also welcomed the investigation and said in an official statement: “We hope that they will act as quickly and as firmly as the European Commission. The Visa bylaw . . . is every bit as offensive here in the United States as it would have been in Europe.”

The Visa rule doesn’t prevent member banks from issuing MasterCards, and MasterCard International Inc. has no ban like Visa’s.

Executives at San Francisco-based Visa USA, an association owned by banks, didn’t immediately respond to a request for comment. The probe was disclosed in Wednesday’s American Banker, a trade publication.

Last week, Visa USA Chief Executive Carl Pascarella said in an interview that his association had no plans to back down.

The association estimates member banks have invested more than $5 billion over 20 years to build up the Visa brand and the payments system used to process billions of transactions a year worldwide.

“To have American Express or any competitor free-ride on that is really not something that we think--and the banks, I believe, think--is in their best interest,” Pascarella said.

Though Visa International last week decided not to block European banks from issuing rival cards, Pascarella last week said it has yet to feel the regulatory pressure to do so in the U.S.