Dive Brief:

• Visa has transferred $1.5 billion to its litigation escrow account as the company prepares to fight a Justice Department antitrust complaint concerning its dominance in the debit card payments market. Visa had $1.596 billion in the account as of June 30, according to its last quarterly investor report. Visa has paid $575 million for legal matters this year as of June 30, including $204 million for U.S. litigation.

• Visa plans to “vigorously” contest the Sept. 24 DOJ lawsuit targeting the company’s size and business agreements, the company says. Its defense is likely to rest heavily on the Supreme Court’s decision in Ohio v. American Express, which examined steering arrangements for credit card transactions in two-sided platforms, according to a Sept. 30 analysis by Mintz attorneys. The Court ruled that the bank’s merchant agreements did not violate Section 1 of the Sherman Act.

• Visa established a “retrospective responsibility plan” 16 years ago for expected litigation, ahead of its March 2008 public stock offering. Visa’s litigation plan covers judgments and settlements in U.S. cases, and affects the value of its Class B shares, shielding Visa’s Class A and C shareholders from direct losses. Visa funding the litigation account dilutes Visa’s Class B shareholders, which are primarily four large U.S. financial institutions, including Bank of America and JP Morgan Chase.

Dive Insight:

The government lawsuit contends that Visa has an illegal monopoly for debit-card transactions that it wields to impose agreements on merchants and banks that exclude potential competitors from debit processing. Visa has also made deals with potential competitors — including Apple, PayPal and Square — to preclude them from developing rival networks for debit transactions, according to the complaint.

The DOJ complaint “brings together two important strands — frequent antitrust challenges both by the DOJ and private parties (and other competition authorities around the world) to practices by Visa, MasterCard, and American Express, as well as the Biden Administration’s stepped-up use of Section 2,” Mintz attorneys Bruce Sokler and Payton Thornton wrote in their analysis.

The day of the suit’s filing, Visa General Counsel Julie Rottenberg said in a media statement that the DOJ complaint “ignores the reality that Visa is just one of many competitors in a debit space that is growing, with entrants who are thriving.” 

Visa is likely to argue that the government doesn’t understand how the debit-transactions market functions, as alluded to in Rottenberg’s initial comments. Visa’s lawyers are also sure to mine the Supreme Court’s 2018 ruling in American Express, in which 11 states carried their appeal to the Supreme Court following a Second Circuit ruling in the bank’s favor. The DOJ left the case as a plaintiff after the circuit court’s ruling. 

Writing for the 5-4 majority, Justice Clarence Thomas said in that case that the states had failed to meet their initial burden of the rule of reason in showing that American Express’ contractual anti-steering agreements restrained trade and were anti-competitive. American Express used these agreements with merchants to prevent them from urging consumers to use another card for purchases, with lower fees for the merchants.

The government’s debit-processing lawsuit “will reveal some of the challenges faced by antitrust plaintiffs post-AmEx,” Sokler and Thornton wrote.

Visa, along with rival Mastercard, has also been involved with class action multidistrict litigation from merchants and other suits for 19 years related to the credit card interchange fees it charges merchants for retail transactions.

In June, U.S. District Judge Margo Brodie rejected a $30 billion proposed settlement of that litigation, saying that it did not treat all class members equitably.

Stock sales

The government’s antitrust suit came weeks after four top Visa executives sold shares as part of SEC Rule 10b5-1 trading plans to govern share sales by company insiders.

Chief Executive Ryan McInerney sold about $2.4 million in shares on Sept. 3, while Rottenberg sold $707,300 worth of her shares on Aug. 29 under their preset trading plans, according to Visa’s regulatory filings.

Kelly Mahon Tullier, Visa’s chief people and corporate affairs officer, sold $10.1 million worth of her shares on Aug. 16, including stock awards from 2022 that vested this year. A day prior, Chief Financial Officer Chris Suh sold shares worth about $4 million.