Free Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel by Lloyd Constantine Page A

biggest customer, it would stop forcing Wal-Mart to accept unwanted MasterCard signature debit cards. Wal-Mart’s Steve Hunter had previously made the same request of Visa. Visa’s CEO, Carl Pascarella, had responded by saying that Visa could force Wal-Mart to accept the unwanted signature debit cards. Wal-Mart thought MasterCard would be different. I knew better. MasterCard would not back off, even at the request of Wal-Mart. MasterCard had earlier responded to a similar request by The Limited with a condescending refusal couched in terms almost identical to Visa’s. Moreover, it would have been a very good move for MasterCard to grant Wal-Mart’s request. That is why Visa wouldn’t permit MasterCard to do it.
    I knew that Visa had more than four times as many signature debit card transactions as MasterCard. MasterCard had tried, years before, to emphasize the much safer, much faster, and much less expensive PIN debit technology using a new network it had formed, called Maestro. The tying arrangements that forced merchants to take Visa and MasterCard signature debit and suppressed PIN debit helped Visa much more than MasterCard. Most rational businesses in MasterCard’s position wouldhave granted Wal-Mart’s request, realizing that it would force Visa to match this position or risk a massive defection of stores. But because of duality, MasterCard couldn’t possibly say yes to a strategy that would benefit MasterCard but hurt Visa.
    The merchants’ October 25, 1996, complaint against Visa was purportedly filed not just for Wal-Mart and The Limited, but on behalf of millions of stores. It explained the history and facts of duality and began to teach the court, the press and the unwitting merchant victims how Visa/MasterCard fronted for a U.S. bank cartel. The complaint alleged that thousands of banks were coconspirators. They owned both Visa and MasterCard and forced merchants to accept both brands of debit card transactions with contracts that included identical tying arrangements. The largest of these banks, such as Citibank, Bank of America, and Wells Fargo, called the shots in both associations.
    Although banks didn’t simultaneously sit on the boards of both Visa and MasterCard, it was common for a bank on the Visa board to serve on a governing body of MasterCard or vice versa. A good example of this was Norwest Bank, which served on the Visa board while at the same time serving on MasterCard’s so-called Business Committee, a group with significant clout within the MasterCard association. Banks also hopped right out of one bed and into the other, like Citibank, which went directly from the Visa board to the MasterCard board. Flaunting these facts before the Federal Antitrust Division, MasterCard’s general counsel, Bob Norton, had asked the Department of Justice to exempt MasterCard and Visa from the law that bars simultaneous service on the boards of two competing businesses. In his letter seeking an exemption from the law concerning such “interlocking directorates,” Norton argued that MasterCard and Visa “simply do not compete in any conventional business sense.”
    You don’t have to be an antitrust expert to realize how foolish it was to say this to the Antitrust Division. For sheer stupidity, it was the MasterCard analog of Visa’s CEO sending a boycott telegram to 5,500 banks and invoking their membership in MasterCard. Norton made this request in a letter to the Department of Justice in 1992, three years after the events at Rusty Staub’s. Norton sent a copy of his letter to his outside antitrust counsel, Stanley Robinson, at the Kaye Scholer law firm. That was three years after Robinson’s law partner had told me that Stanley was about to retire as part of his plea that I not press ethical charges against Robinson or Kaye Scholer.
    The merchants’ complaint also explained how almost identical exclusionary rules adopted by Visa and MasterCard kept American Express and Discover from entering