MasterCard Settles Antitrust Suit With Retailers

MasterCard International Inc. on Monday settled an antitrust suit with Wal-Mart Stores Inc. and other retailers over debit card fees as it was about to go to trial.

Settlement terms weren’t disclosed. The agreement leaves Foster City, Calif.-based Visa USA Inc., whose market share is twice MasterCard’s, the sole defendant. Some 5 million merchants, demanding more than $39 billion in damages, sued Visa and MasterCard for forcing them to accept higher-fee debit cards as a condition of taking credit cards.

Should the retailers win, Sears, Roebuck & Co., Circuit City Stores Inc. and Safeway Inc., among others, could reduce their costs on transactions processed with some debit cards. They could refuse to process debit transactions that require a signature, instead encouraging customers to use personal identification numbers, or PINs. Debit cards used with signatures carry fees as much as 15 times higher than other debit cards.

“I think it was a very smart move by MasterCard,” said David Balto, an expert in antitrust law who is a former director of policy at the Federal Trade Commission. “I think the problem of being a smaller co-defendant like MasterCard in a case like this is that it’s hard for a jury to distinguish between one defendant and another, and at times you can be unfairly tarred with the bad acts of the larger defendant.”

Some details of the deal still were being worked out. MasterCard agreed to pay some money and to change some of its practices, people familiar with the deal said. The merchants had said before trial that any settlement would have to include an end to the link between credit and debit cards.

MasterCard’s deal strengthens the merchants’ position in bargaining for a settlement with Visa, lawyers said. Retailers now have a minimum amount they can demand in any negotiations, making settlement talks more costly and difficult for Visa.

Decreased use of debit cards that use signatures also would mean a drop in revenue for Visa and MasterCard member banks that issue the cards and process the transactions for a fee. A victory for retailers may force Visa and MasterCard to cut the fees they charge merchants for debit card transactions made with signatures should the two companies wish to continue offering customers all card payment choices, investors said.

That prospect may explain why Visa, which picked a jury Monday, chose to go to trial rather than settle, said James Thorne, vice president and senior portfolio manager of M&T; Bank Corp., which owns shares in several companies that offer PIN-based debit cards.

“Consumers have greatly benefited from the current payment system,” Visa Vice President Daniel Tarman said. “Visa is focused on demonstrating at trial that our practices are legal, appropriate and in the best interests of consumers.”

Sharon Gamsin, spokeswoman for MasterCard, and Kent Jarrell, spokesman for Wal-Mart and the other merchants, declined to comment.

U.S. District Judge John Gleeson in Brooklyn, N.Y., ordered the parties not to discuss the MasterCard settlement to avoid prejudicing the jury. He scheduled opening arguments of the trial for Wednesday.