The U.S. government wants banks who sit
on the board of either Visa or MasterCard to issue 100 percent of
their new cards through that association, in its strictest
proposal yet during an antitrust trial.
As the rules stand now, banks can have significant stakes in
both networks, a policy the government claims keeps Visa and
MasterCard from truly competing with each other.
Visa and MasterCard, which are owned by major banks, also
should repeal laws now blocking their member banks from issuing
cards from rivals like American Express Co. (AXP.N) and Morgan
Stanley Dean Witter & Co. (MWD.N) unit Discover, the government
said in a proposed final judgement filed on Friday.
The card networks are on trial in a Manhattan federal court
this summer after the government sued them in October 1998 for
allegedly harming consumers by preventing industry competition and
dampening innovation. Visa and MasterCard together control more
than 75 percent of U.S. credit card sales.
The latest proposals are stricter than originally expected.
Previously, the government had indicated it wanted banks who sit
on the governing board of MasterCard or Visa "dedicate'' around 80
percent of their card portfolio to that brand.
MasterCard decried the government's proposed remedies as
"The Justice Department has come forward with what I would
call a preposterous remedy that ties the hands of banks that elect
to sit on the board of either membership association,'' Noah Hanft,
MasterCard U.S. counsel, said. "That would result in less choice
not only for banks but also for consumers.''
Visa spokesman Kelly Presta said the remedy "looks like it
could have been written by American Express. American Express is
the only one who will benefit.''
The card networks have alleged throughout the trial that
American Express lobbied the Justice Department to sue Visa and
MasterCard, to tap into their bank networks. American Express has
countered that the networks are only trying to distract attention
from their own anti-competitive practices.
Starting in 2003, the government wants governing banks to have
80 percent of their card portfolios issued through the network
they govern by 12 months before their election to the board.
Other banks who are members of one of the two card networks
but are not on the governing boards would not have to choose to