EXCEEDING THEIR LIMIT?

November 26, 1998

Millions of Americans pay with "plastic" everyday, and, more likely than not, they are pulling either Mastercard or Visa out of their wallets. Do these two companies have an unfair lock on the credit card business? Phil Ponce looks at Justice Department antitrust suit that demands that Visa and Mastercard change their practices to allow for more competition , followed by a discussion on this topic.

Participate in a forum on this topic. Dec. 8, 1998: An online forum on the government's antitrust case against Visa and Mastercard. Oct. 19, 1998: A look at the government anti-trust case against Microsoft. April 21, 1998: The battle betweenbanks and credit unions. March 3, 1998: An examination of Microsoft's business practices.     Visa, Inc. Mastercard International, Inc. The U.S. Justice Department's Antitrust Division page on the Visa/Mastercard case

PHIL PONCE: The Friday after Thanksgiving -- the traditional start of the holiday shopping season -- is one of the year's biggest shopping days -- and for many Americans, it's a day to pull out the credit card. SPOKESPERSON: You take American Express right? PHIL PONCE: In 1997, Americans used credit cards to buy $1 trillion of goods. According to reports, two cards dominate the market -- Visa with 50 percent and MasterCard with 25 percent. The remaining 25 percent is shared by American Express and other smaller companies. But now America's two largest credit card companies face a new challenger -- the Justice Department -- which last month filed an antitrust lawsuit against them. The Justice Department alleges that Visa and MasterCard do not compete against each other, but, rather, cooperate with each other. That's because -- even though each card is run by a separate network -- both networks are owned and operated by the same basic group of major banks. JANET RENO: America's consumers have simply lost out. They have lost the benefit of vigorous competition between the two largest credit card networks, which means that they have not enjoyed the innovation that competition brings. PHIL PONCE: The suit also alleges that Visa and MasterCard's bylaws include illegal "exclusionary" rules that allow a member bank to issue both major cards -- but none of their rivals. For example, according to Visa's by-laws: The membership of any member shall automatically terminate in the event it, or its parent subsidiary or affiliate, issues, directly or indirectly, Discover cards or American Express cards, or any other cards deemed competitive by the board of directors. MasterCard has a similar policy. The government says these "exclusionary" rules stifle competition between Visa and MasterCard. COMMERCIAL SPOKESPERSON: Maybe you cannot get her everything her heard desires -- PHIL PONCE: But Visa and MasterCard point to magazine advertisements -- commercials -- and most importantly, direct-mail solicitations as evidence there's plenty of competition and that the government has it wrong. Visa's executive vice president had this to say in a video press release. MICHAEL BEINDORFF, EXECUTIVE VP, VISA USA: Visa supports the government's role in protecting consumer choice and competition. However, we believe the suit filed today by federal regulators will fail in a court of law because -- when you get right down to it -- consumers have unlimited choices when it comes to credit cards. PHIL PONCE: The case will be heard next year.