Federal judge rules Visa must repeal service fee

PURCHASE, N.Y. (AP) — A service fee that Visa places on its largest debit card issuers that essentially deterred them from moving their business to a competitor is unlawful and must be repealed, a judge has ruled.

Credit card network operator and Visa rival MasterCard Inc. said Friday that federal Judge Barbara Jones ruled on Thursday that Visa's fee, which was implemented after a lawsuit was settled in 2003, is unlawful.

The service fee required Visa's 100 largest issuers of debit cards to pay a "settlement service fee" if they reduce their Visa debit volume by more than 10 percent. MasterCard claimed that effectively prevented those issuers from switching their business to MasterCard.

Visa wasn't immediately available to comment.

"This is a significant win for MasterCard and its customers," said Noah Hanft, MasterCard general counsel. "With this roadblock out of the way, financial institutions will not be deterred by this coercive fee and can make decisions based on their best judgment about quality of service, strength of brand and other competitive factors that benefit their cardholders."

MasterCard said the judge also ordered that all of Visa's top 100 debit card issuers could terminate their agreements with Visa if they were signed while the fee was being levied and wish to switch.

In response to the ruling, Visa said it is weighing its legal options, which could include an appeal.

"Since Visa enacted the settlement service fee, competition for debit card issuance has remained vibrant. Debit wins by MasterCard demonstrate that Visa's Settlement Service Fee has not prevented members from issuing MasterCard debit cards. We are confident our issuers are committed to Visa's debit products due to the strong value they offer, not the Settlement Service Fee," a company statement said.