Class Action Alleging Excessive ATM Fees Will Proceed
In June 2016, the Supreme Court agreed to decide whether consumers can sue banks and credit card companies for allegedly conspiring to prevent ATM owners from offering lower access fees to consumers. Three class action consumer lawsuits alleged that the companies kept ATM fees artificially high, in violation of antitrust laws.
In late November 2016, the Court changed its mind about resolving the dispute. It dismissed the credit card companies’ appeal on the ground that lawyers made one argument to persuade the Court to accept the case, only to make a different argument when arguing the appeal on its merits. The dismissal of the appeal leaves the lower appellate court ruling in place, permitting the class action lawsuits to go forward. That might lead to lower ATM access fees in the future.
An ATM machine connects a card user to the user’s bank by processing the transaction through an ATM network. Some networks (like Plus) are owned by Visa, some (like Cirrus) are owned by MasterCard, and some (like STAR and NYCE) are owned by other companies. The logos on ATM cards tell consumers which networks they can use.
A consumer who uses an ATM typically pays an “access fee” (averaging about $2.10) to the ATM owner. In addition, the ATM owner charges the bank that issued the card a “net interchange fee” (usually sixty cents or less).
The ATM owner, in turn, must pay a network service fee to the network that processes the transaction. The network service fee charged by the networks that Visa and MasterCard own is relatively high (as much as fifty cents per transaction). The fee is deducted from the net interchange fee that the ATM owner receives, so an ATM owner that charges a net interchange fee of sixty cents might only receive ten cents from the bank that issued the card if the transaction is processed through Cirrus or Plus. Networks that are not owned by Visa or MasterCard typically charge lower service fees, so the ATM owner potentially earns more when transactions are processed on those networks.
The Sherman Act, originally passed in 1890, prohibits businesses from engaging in certain anti-competitive practices. The law is intended to protect consumers by preserving a competitive marketplace.
Visa and MasterCard may be violating the Sherman Act by prohibiting ATM owners from charging customers a higher access fee for transactions that are processed on networks owned by Visa and MasterCard than they charge for transactions processed on other networks. That rule, which is a condition of gaining access to networks like Cirrus and Plus, prevents an ATM owner from offering to charge customers an access fee of $1.75 if they use an ATM card that can be processed by STAR or NYCE, but $2.00 if the ATM card must be processed by Plus or Cirrus.
In Osborn v. Visa and two other class action lawsuits, consumers who used independent ATMs sued Visa and MasterCard, alleging violations of the Sherman Act. They reasoned that, in the absence of the network rules that Visa and MasterCard impose on independent ATM owners, those owners would charge consumers lower access fees for using cards that could be processed through networks that are not owned by Visa or MasterCard.
The district court dismissed the lawsuits on the ground that the consumers lacked standing to bring their claims. “Standing” is a legal rule that prohibits a party from bringing a lawsuit unless the party has a basis for alleging that it suffered a concrete injury and that the defendant being sued was responsible for that injury.
The district court concluded that the consumer plaintiffs lacked standing to sue because they were not injured by the network rules that Visa and MasterCard imposed on ATM operators. Since consumers do not know whether the ATM operators would actually discount their access fees in the absence of those rules, the court decided that any claim of injury to consumers was speculative. And since a speculative injury is not a concrete injury, the court ruled that the consumers lacked standing to sue.
The Court of Appeals decided that the plaintiffs’ claim was supported by widely accepted economic theory. Since ATM owners make more money by encouraging consumers to use ATM cards that can be used on the STAR or NYCE networks, they have an economic incentive to offer discounts to customers who do so. Since consumers want those discounts, they have an economic incentive to use ATM cards that offer access to those networks. Based on those marketplace realities, the Court of Appeals concluded that the plaintiffs might be able to prove that “Visa and MasterCard insulate their networks from price competition from other networks,” yielding “higher profits for Visa and MasterCard … at the cost of consumers and independent ATM operators.” Since “the economic injury alleged is present and ongoing,” the Court of Appeals reinstated the lawsuit.
Supreme Court Action
Visa and MasterCard asked the Supreme Court to review the Court of Appeals’ decision. Whether or not the plaintiffs had standing, Visa and MasterCard claimed that they did not violate the Sherman Act by agreeing to adhere to rules that prohibit ATM owners from favoring some networks over others.
The rules were implemented by banks that operated as joint ventures when they created Visa and MasterCard. About ten years ago, Visa and MasterCard became independent, publicly traded entities. Visa and MasterCard initially argued that agreeing to follow rules imposed by a former joint venture does not violate the Sherman Act.
After the Supreme Court agreed to review the Court of Appeals’ ruling, Visa and MasterCard changed their argument. Instead of arguing that they did not violate the Sherman Act by following rules set by the association to which they once belonged, they argued that Visa and MasterCard are now independent joint ventures and that they each adopted the same rule independently. Since there was no agreement between them to limit competition, there was no anti-trust violation.
The Supreme Court dismissed the appeal from the Court of Appeals’ ruling. It said that it had agreed to decide the issue originally raised, not the issue that Visa and MasterCard actually argued. Reading between the lines, it appears that the Court didn’t appreciate being gamed by the lawyers for Visa and MasterCard, who now have egg on their collective faces.
The End Result
The impact that the case will have on ATM fees will not be known for some time. For the moment, the lawsuit will be allowed to proceed in the district court. In the end, if the consumers win their lawsuit or settle on favorable terms, ATM users may benefit from price competition as access fee are reduced for ATM cards that can be used on networks that aren’t owned by Visa or MasterCard.