In re Currency Conversion Fee Antitrust Litigation

Decision Date07 July 2003
Docket NumberNo. M 21-95.,No. MDL 1409.,MDL 1409.,M 21-95.
Citation265 F.Supp.2d 385
CourtU.S. District Court — Southern District of New York

PAULEY, District Judge.

This action consolidates for centralized pretrial proceedings more than twenty putative class actions filed in this Court or transferred here by the Judicial Panel on Multidistrict Litigation. The underlying complaints challenge alleged foreign currency conversion policies by VISA and MasterCard, the two largest credit card networks, and their member banks, including Citigroup, Inc., Bank of America Corporation, Bank One Corporation, J.P. Morgan Chase & Company, Providian Financial Corp., and Household International, Inc. A Revised Consolidated Amended Class Aetion Complaint ("Complaint" or "Compl.") asserts violations of the Sherman Act, 15 U.S.C. § 1 et seq., arising out of alleged price-fixing conspiracies by and among VISA, MasterCard, their member banks, and Diners Club concerning foreign currency conversion fees. The Complaint also asserts claims for violations of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., in the banks' disclosures to their customers. The defendants move to dismiss the Complaint. In addition, some defendants move to compel arbitration. For the following reasons, the motion to dismiss is denied in part and granted in part, and the motion to compel arbitration is granted.


On a motion to dismiss, the allegations in the Complaint are accepted as true.

There are various payment alternatives in the consumer payment card industry. One involves payment vehicles known as "general purpose cards." They enable consumers to purchase goods or services from a merchant without directly accessing or reserving funds at the time of the purchase. (Compl.¶¶ 7, 81.) There are two primary types of general purpose cards: "credit cards" and "charge cards." Holders of credit cards receive a line of credit from the credit card issuer (generally a bank), and are permitted to charge purchases to their credit cards. Then, they may elect to pay the entire amount due within a fixed period of time, or alternatively pay a portion of the amount and finance the remainder over time. (Compl.¶¶ 8, 81.) In contrast, holders of charge cards are required to pay the entire amount due within a set number of days after receiving a monthly billing statement. (Compl.¶¶ 9, 81.)

A general purpose card transaction includes several different parties: (1) the consumer cardholder; (2) the third-party merchant who accepts the card as payment for goods and/or services; (3) the network association or corporation that owns and operates the network processing the transactions; (4) the bank that issues the card to the consumer; and (5) the bank that contracts with the merchant to accept the card. (Compl.¶¶ 79, 82.) A typical transaction entails the following:

a merchant accepts a credit card from a customer for the provision of goods and services. The merchant then presents the card transaction data to an "acquirer," typically a bank, for verification and processing. The acquirer presents the transaction data to the association which, in turn, contacts the issuer to check the cardholder's credit line. The issuer then indicates to the association that it authorizes or denies the transaction. The association relays the message to the merchant's acquirer, who then relays the message to the merchant. If the transaction is authorized, the merchant will submit a request for payment to the acquirer, which relays the request, via the association, to the issuer. The issuer pays the acquirer; [and finally] the acquirer pays the merchant and retains a percentage of the purchase price for its services which is shared with the issuer.

(Compl.¶ 83.)

A. VISA and MasterCard Associations

VISA and MasterCard are the two largest general purpose card networks in the world. (Compl.¶ 86.) Those networks are owned by defendants VISA U.S.A., Inc. ("VISA U.S.A.") and VISA International Service Association ("VISA International") (collectively "VISA"), and defendant MasterCard International, Incorporated ("MasterCard"), respectively. VISA and MasterCard are joint ventures or membership associations owned and operated by their member banks. (Compl.¶¶ 35, 38, 90.) Their networks execute transactions that use one of their affiliated general purpose cards. (Compl.¶ 79.) In turn, member banks are authorized to issue VISA and MasterCard branded general purpose cards. They are also granted rights similar to those of a shareholder in a corporation, including the right to vote for a board of directors, participate in the governance of the association, and receive dividends. (Compl.¶¶ 35, 38, 92.)

The memberships of the VISA and MasterCard associations are virtually identical reflecting a ninety-five percent (95%) overlap. (Compl.¶ 94.) All the defendants in this action, either directly or through a subsidiary or affiliate, are members of both VISA and MasterCard, and issue some type of general purpose card. (Compl.¶¶ 13, 92.) Defendant Citigroup, Inc. ("Citigroup") issues Citibank VISA and MasterCard credit cards, AT & T Universal VISA and MasterCard credit cards, and Diners Club charge cards. (Compl.¶¶ 41.) Citigroup issues its Citibank cards through its wholly-owned subsidiary defendant Citibank (South Dakota) N.A. ("Citibank (South Dakota)"). (Compl.¶¶ 41-42.) The AT & T Universal credit cards are issued through Citigroup's wholly-owned subsidiaries defendants Universal Financial Corp. and Universal Bank, N.A. Citigroup's Diners Club charge cards are issued through its wholly-owned subsidiary Citibank (South Dakota), and Citibank (South Dakota)'s wholly-owned subsidiary defendant Citicorp Diners Club, Inc. ("Diners Club"). (Compl.¶¶ 41, 43-44, 47-48.)

Defendant Bank of America Corporation ("BOA Corp.") issues its VISA and MasterCard credit cards through its whollyowned subsidiary defendant Bank of America, N.A. (USA) ("BOA"). (Compl.HH 49-50.) Defendant Bank One Corporation ("Bank One") issues its VISA and MasterCard credit cards through its subsidiary defendant First USA Bank, N.A ("First USA"). (Compl.¶¶54-55.) Defendant J.P. Morgan Chase & Co. ("J.P. Morgan Chase") issues its VISA and MasterCard credit cards through its whollyowned subsidiaries defendant Chase Manhattan Bank USA, N.A. and defendant The Chase Manhattan Bank. (Compl.¶¶ 59-60.) Defendant Providian Financial Corp. ("Providian") issues its VISA and Master-Card credit cards through its whollyowned subsidiaries defendant Providian National Bank and defendant Providian Bank. (Compl.¶¶ 64-65.) Defendant Household International, Inc. ("Household") issues its VISA and MasterCard credit cards through its wholly-owned subsidiary defendant Household Finance Corporation. (Compl.¶¶ 66-68.) Defendant MBNA Corporation ("MBNA Corp.") issues its VISA and MasterCard credit cards through its wholly-owned subsidiary defendant MBNA America Bank, N.A. ("MBNA"). (Compl.¶¶ 70-71.) Collectively these defendants and their subsidiaries and affiliates are referred to as the "Issuing Banks." (Compl.¶¶ 13, 84.)

Both VISA and MasterCard are controlled by a select group of their member banks, which include the Issuing Banks. (Compl.¶ 91.) These banks established control by concurrent service on the board of directors and/or important committees of either or both associations. (Compl.¶ 91.) In fact, plaintiffs allege that nearly all of the largest card-issuing member banks have had or currently have a representative of their bank on the board of directors or an important policy-influencing committee of both VISA and MasterCard. (Compl.¶ 95.) For example, in 1996 seventeen of the twenty-seven banks on MasterCard's Business Committee also had a representative on VISA's Marketing Advisors Committee. Also, twelve of the twenty-one banks with a representative on VISA's board of directors had a representative on MasterCard's Business Committee. (Compl.¶ 95.) In sum, as of year-end 1996, nineteen banks, including defendants J.P. Morgan Chase, Citigroup, and BOA, had a representative on the board of directors of either VISA or MasterCard and a representative on at least one important committee of the other association. (Compl.¶ 96.)

Further, the members of VISA and MasterCard are allocated voting and dissolution rights in relation to the total dollar volume of transactions that member transmits through the particular association. The top ten issuers of VISA and Master-Card cards account for a substantial majority of the total volume of credit card purchases. The Issuing Banks are seven of the top ten issuers of VISA and Master-Card credit cards. In the third quarter of 2001, the seven Issuing Banks accounted for $347 billion in receivables compared to $114 billion for the other forty-three issuers that make up the top fifty issuers of VISA and MasterCard cards. (Compl.¶ 93.)

In effect, plaintiffs allege, the Issuing Banks control both VISA and MasterCard. (Compl.¶¶ 74, 95.) As an illustration of this so-called "dual governance," plaintiffs quote MasterCard's Executive Vice President and General Counsel in a 1992 letter to the Department of Justice, as follows: "when one board acts with respect to a matter, the results of those actions are disseminated to the members which are members in both organizations. As a result, each of the associations is a fishbowl and officers and board members are aware of what the other is doing, much more so than in the normal corporate environment." (Compl.¶ 97.)

B. The Currency Conversion Fees

VISA and MasterCard's electronic networks and settlement systems serve as clearinghouses for general purpose card transactions in foreign countries using cards issued by their member banks. (Compl.¶ 99.) This allows cardholders from the United States to purchase goods or...

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