The Government’s House of Cards

Thousands of U.S. banks issue both Visa and MasterCard plastic, and the two giant cards restrict the banks from issuing other cards, such as American Express. However, there is no indication that consumers have suffered from this situation, as the government contends, or that breaking up the system under which the same group of banks controls Visa and MasterCard would bring the public any benefits. The Department of Justice is wasting its resources in pursuing an expensive antitrust lawsuit based on such shaky ground.

In a trial that opened last week and is expected to last months, the government admits the banks that issue Visa and MasterCard do compete with one another in areas critical to consumers, including interest rates, fees, enhancements and customer service. Where they don’t compete, Justice argues, is in the use of “smart cards” with embedded chips that store loads of information about the cardholder, including such private data as medical information. Polls show consumers don’t want these cards because of privacy concerns.

Unlike American Express, which is owned by a single company, Visa and MasterCard are nonprofit associations run by member banks that often have representatives on the boards of both associations. But this “duality” system is beginning to crack. Last year, for example, Citigroup, the world’s biggest card issuer, dropped Visa and shifted all its business to MasterCard, and so did Chase Manhattan. Bank of America opted for Visa.

Granted, the two cards have cornered 75% of the $1.3-trillion annual U.S. consumer credit market, but even Joel I. Klein, the Justice Department’s own chief antitrust enforcer, concedes that being big is not necessarily grounds for a breakup. Breakup would require courts to show that the system is harming consumers. That is a conclusion the government will be hard-pressed to support with available evidence.