The U.S. Department of Justice (DOJ) has initiated a lawsuit against Visa, alleging antitrust violations that impact the pricing of goods and services across the economy. The lawsuit, filed in the Southern District of New York, claims that Visa has stifled competition by imposing high fees on merchants and effectively paying off potential rivals, thereby maintaining its dominance in the debit card market.
Allegations of Anticompetitive Behavior
According to the complaint, Visa’s practices make it challenging for merchants to switch to lower-cost or smaller payment processors. Prosecutors described these penalties as “disloyalty penalties,” which deter merchants from exploring alternative payment processing options. Visa is reported to process over $3.3 trillion in transactions, controlling more than 60% of the debit card transactions in the U.S. The company collects approximately $7 billion annually in fees for transactions processed through its network.
U.S. Attorney General Merrick Garland stated, “We allege that Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market.” He emphasized that the high costs incurred by merchants and banks are ultimately passed on to consumers, influencing prices across the board.
Visa’s Response
Visa has labeled the lawsuit as “meritless” and expressed its intention to defend itself vigorously. Julie Rottenberg, Visa’s general counsel, pointed out that the market for debit transactions is expanding with numerous competitors emerging. “Today’s lawsuit ignores the reality that Visa is just one of many competitors in a debit space that is growing,” she asserted.
Following the announcement of the lawsuit, Visa’s stock dropped nearly 5%, reflecting investor concerns regarding the implications of the legal action.
Background and Implications
The alleged anticompetitive conduct by Visa reportedly began around 2012, coinciding with the entry of competing companies into the payment processing sector after regulatory reforms mandated that card issuers accommodate unaffiliated networks. The DOJ has been investigating Visa’s debit card practices since 2021, the same year it blocked Visa’s acquisition of financial technology company Plaid.
This lawsuit aims to restore competition in debit payment processing services, both online and in physical retail environments. The DOJ’s antitrust division has highlighted the need for fair competition in the payments industry as part of a broader initiative under the Biden administration to address rising consumer prices and other unfair fees associated with everyday transactions.
Context of Ongoing Scrutiny
Visa is not alone in facing scrutiny; Mastercard is also under investigation by the DOJ for similar practices. Both companies have been entangled in legal disputes for nearly two decades over their control of the card market, and in 2019, they agreed to pay $5.6 billion to settle damages claims in a class-action lawsuit accusing them of anticompetitive behavior.
Jon Donenberg, deputy director of the White House National Economic Council, reiterated the administration’s commitment to fostering competition in the American economy, highlighting ongoing efforts to combat unfair fees in various sectors.
As the lawsuit unfolds, it could have significant implications for Visa and the broader payments industry, potentially reshaping how debit transactions are processed and priced in the future.
