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Appeals Court Breathes New Life Into ATM Fee Price-Fixing Suit

Source: Consumerist By  August 4, 2015

More than two years after a federal court dismissed price-fixing lawsuits against Visa, MasterCard, Bank of America, JPMorgan Chase, and Wells Fargo, a federal appeals court has revived the cases that involve allegations that these banks and payment networks illegally and anticompetitively established fee levels for out-of-network ATM use.

Non-bank ATM operators make money in two ways. The first we’re all familiar with: fees charged directly to the user. You want your money? That’ll be a few bucks on top of whatever you withdraw (and whatever your bank charges). That averages more than $2/transaction nationwide.

The other revenue stream for independent ATM operators is the fee charged to the banks for each transaction. This can run upwards of $.60 each, but a good chunk of that doesn’t go to the ATM operator. Instead, it goes to whichever network connected the ATM to the particular bank.

Visa and MasterCard run some of the most widely used networks, like Plus, Interlink, Cirrus, and Maestro. They also charge ATM operators the highest fees — up to $.50/transaction, according to court documents. That’s significantly more than the $.06-$.29/transaction fees charged by many smaller networks.

Thus, ATM operators would have an incentive to push customers to use other payment networks, like Star, NYCE, or Credit Union 24. They could, for example, tell customers that if their card accesses one of those networks (which is usually indicated with a little logo on the front or back), that their ATM fee would be lower, say $1.75 instead of $2.00.

But if ATM operators want to include access to any of the Visa or MasterCard networks, they have to agree to the condition that they won’t favor any other network in this way.

The plaintiffs in the lawsuits contend that this requirement illegally restrains the efficient pricing of ATM services.

The sort of anticompetitive practice alleged here is what’s known as “anti-steering,” in that it prevents merchants from directing consumers to an option that could save everyone money.

Merchants recently won a court victory over similar requirements in the American Express merchant agreement, though the credit card company is appealing that decision.

The appeal to the D.C. Circuit Court of Appeals consolidates three different complaints, all involving the Visa and MasterCard fees.

Two of the complaints involved consumers who said they were forced to pay high ATM fees because of the anti-steering policies of these companies. The third lawsuit was filed by a trade group, the National ATM Council, and several individual ATM operators.

In Feb. 2013, a U.S. District Court concluded that these complaints had failed to allege facts sufficient to establish standing or lacked adequate facts to establish violations of the Sherman Antitrust Act.

The case seemed dead in the water after Dec. 2013, when the court ruled that the plaintiffs’ amended complaints still lacked sufficient facts to establish standing or a conspiracy.

In dismissing the cases, the District Court had concluded that the plaintiffs had failed to show any real injury because of the current fee agreements.

The plaintiffs theorized that the removal of the anti-steering requirement would result in lower-cost options for non-bank ATM users, but the court ruled that this was merely an “attenuated, speculative chain of events that relies on numerous independent actors,” and not evidence of measurable damage.

But the appeals panel disagreed [PDF], and accused the lower court of “demanding proof of an economic theory that was not required in a complaint.”

In overturning the dismissals, the appeals court notes that the two plaintiff theories complement each other — that the consumer plaintiffs believe they could pay lower fees if there were more choices, while the ATM operator plaintiffs say they would direct consumers to lower-cost options if they were allowed to.

The panel isn’t saying that the plaintiffs were right or that their theories are proof of damage, but that the court erred by putting too heavy a burden on the plaintiffs at too early a stage in the legal process, and that the worth of these theories are a matter that should be decided through a trial.

“Plaintiffs’ theories here are susceptible to proof at trial,” writes the appeals court. “The Plaintiffs allege a system in which Visa and MasterCard insulate their networks from price competition from other networks. This insulation yields higher profits for Visa and MasterCard (and higher returns for their shareholders), at the cost of consumers and independent ATM operators. The economic injury alleged is present and ongoing.”

The appeals court also note that the theories aren’t pure speculation or ivory tower economic musings, but that the “complaints contain factual details, including details about the Plaintiffs’ own conduct, that support the alleged causal link between the Access Fee Rules and the economic harm.”

And even when the plaintiffs “rely on certain economic assumptions about supply and demand,” the appeals court holds that “these sorts of assumptions are provable at trial.”

The appeals court also found some merit in the plaintiffs’ antitrust allegations.

Section 1 of the Sherman Antitrust Act outlaws “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce.”

Visa and MasterCard were each previously owned as joint ventures by groups of retail banks. The access fee rules in their ATM agreements date back to those days.

According to the appeals court, these rules “protected Visa and MasterCard from competition with lower-cost ATM networks, thereby permitting Visa and MasterCard to charge supra-competitive fees. The rules also benefited the banks, who were equity shareholders of the associations (and therefore financial beneficiaries of the deal). And the rules protected banks from competition with each other over the types of bugs offered on bank cards.”

The appeals panel also said that it doesn’t matter that Visa and MasterCard each adopted these rules independently and operate as separate businesses, noting that “The Supreme Court has ‘long held that concerted action under [Section] 1 does not turn simply on whether the parties involved are legally distinct entities,’ but rather depends upon ‘a functional consideration of how the parties involved in the alleged anticompetitive conduct actually operate.'”

Per today’s ruling, the allegation that a group of retail banks “fixed an element of access fee pricing through bankcard association rules” describes the “sort of concerted action necessary to make out a Section 1 claim.”

And so the case has been remanded and given new life.

“This is a big win for consumers, who now can seek not only damages caused by the Defendants but can now also pursue an injunction that will spark competition in the ATM market,” said attorney Steve Berman, who argued the appeal, in a statement. “The decision today affirms that our claims should be heard on their merits.”

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