U.S. Court Reaffirms Legality of Interchange

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MasterCard General Counsel and Chief Franchise Officer Noah J. Hanft on March 12 welcomed a decision by the Court of Appeals for the Ninth Circuit upholding a lower court ruling that dismissed a claim by a small group of merchants that interchange violates antitrust laws.

“We’re pleased that the Court of Appeals affirmed the dismissal of the Kendall case on grounds that the merchants had failed to present facts that established a conspiracy,” he said.  

In July 2005, the federal court of the Northern District of California dismissed the lawsuit brought against MasterCard , Visa and a number of banks by a small group of merchants, led by Sheri L. Kendall (doing business as Bala Hair Salon), finding that the merchants did not have standing under the U.S. antitrust laws to bring their claims. The decision was appealed to the U.S. Court of Appeals for the Ninth Circuit, which upheld the dismissal.  

Significantly, Hanft added, the court rejected the merchants’ contention that the interchange fee effectively sets a floor for each bank’s merchant discount fee, concluding that a decision by the banks to recoup their costs “suggests a rational business decision, not a conspiracy.” 

“No U.S. court has found interchange to be illegal,” he said. “Interchange was first found to be necessary to the operation of a four-party decision in the 1980’s with the Nabanco decision.”  

For almost 40 years, MasterCard has established default interchange fees that have proven to be the most efficient way to balance costs in the system and promote a strong, competitive payments industry that benefits cardholders, merchants and financial institutions. Today, some 25,000 financial institutions provide the cards and services that allow hundreds of millions of consumers and 25 million merchants around the world to benefit from the convenience and security of electronic payments.

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