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It's not just the courts -- it seems like everyone is out to eat VISA's and MasterCard's lunch. Big competitors, like First Data Corporation, are now positioning themselves to benefit from the card association's demise.

A California Superior Court judge this month ordered VISA and MasterCard to refund more than $800 million in foreign currency conversion fees to cardholders. The court also ordered the card associations to amend their operating rules to require their issuing members to make effective disclosure of the currency conversion fees charged to consumers. Judge Ronald Sabraw found that VISA and MasterCard violated California's unfair competition law by failing to adequately disclose the currency conversion fees they have charged to U.S. cardholders. However Judge Sabraw also found that VISA and MasterCards currency conversion process does not violate Truth-In-Lending regulations, nor is it in any way unconscionable. Nevertheless, VISA, which is headquartered in California, was ordered to refund the one percent currency conversion fees to all cardholders in the USA who paid the fees from February 15, 1996 to the present. MasterCard, which is headquartered in New York, was ordered to refund the currency conversion fees to all its California consumers who paid the fees during the same period. The court ordered the card associations to devise a plan of restitution by April 28th. VISA and MasterCard responded by saying they will appeal the decision. VISA said it was disappointed by the court's decision particularly since the judge himself acknowledged that the process is "uniquely beneficial" to consumers as cardholders receive currency conversion rates that are favorable to their other conversion options. MasterCard said the judge's decision sends a chilling message to the business community that if you do business in California, you can't rely on existing laws, and you could be subject to sanction based on previously unknown notions of commerce and jurisprudence. MasterCard also said that mandating how its members disclose the currency conversion process to their customers is usurping authority that properly resides with federal authorities, who regulate financial disclosure.

Federal judge John Gleeson this month denied all of VISA's and MasterCard's summary judgement motions in the upcoming "Wal-Mart" debit card lawsuit. Gleeson also denied MasterCard's recent motion for a separate trial. However, the federal judge did grant five of the merchants eight summary judgment motions. Jury selection is schedule to begin April 21st with a trial date of April 28th. Constantine & Partners, lead counsel for the plaintiffs, said that 70% of the trial was decided in the merchants favor as a result of this month's summary judgment motions. VISA said the plaintiffs still have the burden of proving harm to the debit marketplace and that competition in the debit marketplace is thriving and robust. MasterCard said it was disappointed at the rulings but relieved that a jury will decide if there was any competitive harm committed by its "Honor All Cards" rule. The lawsuit, filed in October 1996, by Sears Roebuck, Safeway, Circuit City, Wal-Mart, The Limited, three trade associations the National Retail Federation, the International Mass Retail Association, the Food Marketing Institute and 13 other large and small retailers, charges VISA and MasterCard with violating U.S. antitrust law. The class action includes five million merchants. If successful, the retailer plaintiffs could receive damages between $12 billion and $15 billion, which would be tripled under antitrust law.

New banking regulations in Australia, effective January 1st of this year, now permit merchants to impose surcharges on customers using a credit card. As a result, many merchants are charging customers between 2.5% and 4.5% for VISA, MasterCard, American Express, and Diners Club credit card transactions. In 2002, the Reserve Bank of Australia issued new reforms on the credit card business permitting merchants to recover from cardholders the costs of accepting credit cards. Also under the new RBA rules, merchant fees will decrease from around 95 basis points to approximately 55-60 basis points by July 1st. VISA and MasterCard filed a lawsuit in October 2002 with The Federal Court of Australia over the new RBA credit card laws. The Court has set a trial date of May 5th. The card associations argue that the Reserve Bank of Australia hasn't complied with its obligations under the Payment Systems Act, and that the proposed changes don't meet the public-interest test required under the act.

In February, The Office of Fair Trading in the United Kingdom notified MasterCard that its merchant fee or interchange fee is an "unjustifiably high fee" and an "infringement of the Competition Act," unless MasterCard can provide a cost-justification for the fee. The OFT is unofficially looking for MasterCard to cut the interchange fee from 110 basis points to 70 basis points. VISA is not part of the current OFT investigation. However, VISA agreed with the European Commission last summer to reduce the rate of cross-border interchange by 27%, to 70 basis points, by 2007. Interchange fees in the UK produce about $1.3 billion in revenue. MasterCard has about a 32% share of the UK market. The British Retail Consortium, originally complained to the OFT about the fees in 2000 and reportedly welcomed the OFT ruling.

Two years ago, the U.S. District Court for the Southern District of New York ruled against VISA and MasterCard in the Government's antitrust lawsuit regarding the card associations' exclusionary rules which prohibit members from issuing American Express or Discover cards. However Judge Barbara Jones did not order the networks to change their dual governance structure. In a 157-page ruling, the judge said VISA's bylaw '210(e)' and MasterCard's 'Competitive Programs Policy' weaken competition and harm consumers in a number of ways. In discussing the dual governance issue, the judge said that with the exception of the associations' failure to name each other directly in past advertising, the government's examples failed to prove that dual governance has significantly diminished competition and innovation in the credit and charge card industry.

Meanwhile, First Data Corporation and Concord EFS this month announced a definitive agreement to merge in an all-stock transaction valued at approximately $7 billion. The combination of FDC and Concord will create a payments behemoth. FDC is also majority owner of the NYCE ATM network, which is dominant in the northeast. Concord's STAR ATM network is nationwide. Concord also controls more than half of the POS debit processing market. First Data controls nearly half of the merchant acquiring market. Therefore, it is widely believed that any potential deal between FDC and Concord will draw close regulatory scrutiny.