WASHINGTON — The Justice Department on Monday sued the three largest U.S. credit card companies for anticompetitive practices and reached a proposed settlement with two of them, MasterCard and Visa.
“We want to put more money in consumers’ pockets, and by eliminating credit card companies’ anticompetitive rules, we will accomplish exactly that,” Attorney General Eric Holder told an afternoon news conference. “The companies put merchants and their customers in a no-win situation” and “consumers are being held hostage.”
In papers filed in federal court in Brooklyn, N.Y., the department and state attorneys general from Maryland, Connecticut, Iowa, Michigan, Missouri, Ohio and Texas sued all three companies, saying they were attempting to insulate themselves from competition.
At the same time, the Justice Department filed a settlement it has reached with Visa and MasterCard. Court approval of such settlements is usually a formality.
“The card networks’ rules make it impossible for merchants to negotiate lower rates, and they drive up consumer prices,” Maryland Attorney General Douglas F. Gansler said in a statement. “With this settlement and litigation, consumers will see a wider range of competitive prices for goods and services.”
Under the settlement, Visa and MasterCard agree not to prohibit merchants from offering customers discounts or rebates for using a particular kind of card. Visa and MasterCard also must allow merchants to express preferences for the use of a low-cost card within a network or other form of payment. Merchants also would be allowed to communicate to consumers the cost incurred by the merchant when the consumer uses a particular credit card network, type of card within that network, or other form of payment.
The lawsuit says the card companies are impeding merchants from promoting the use of competing credit or charge cards with lower acceptance fees.
Each time consumers use a credit card to make a purchase, the merchant must pay a fee. Such fees brought in $35 billion last year to the three credit card companies and their affiliated banks.
“We’re partway there” with the proposed agreement with Visa and MasterCard, Assistant Attorney General Christine Varney, head of the department’s antitrust division, told the news conference.
“We remain open” to seek a settlement with American Express,” Varney added.
Shares of American Express lost more than 6.5 percent Monday to close at $39.05; MasterCard’s shares were down nearly 1 percent to $222.64, and Visa’s shares were down just more than one-tenth of 1 percent, to $73.24.