Visa 2007 Annual Report Download - page 30

Table of Contents
Interchange fees have been the topic of recent committee hearings in the U.S. House of Representatives and the U.S. Senate, as well as conferences held
by a number of U.S. federal reserve banks. In addition, the U.S. House of Representatives has passed a bill that would commission a study by the Federal
Trade Commission of the role of interchange fees in alleged price gouging at gas stations. Individual state legislatures in the United States are also reviewing
interchange fees, and legislators in a number of states have proposed bills that purport to limit interchange fees or merchant discount rates or to prohibit their
application to portions of a transaction. In addition, the Merchants Payments Coalition, a coalition of trade associations representing businesses that accept
credit and debit cards, is mounting a challenge to interchange fees in the United States by seeking legislative and regulatory intervention.
Interchange fees and related practices also have been or are being reviewed by regulatory authorities and/or central banks in a number of other
jurisdictions, including the European Union, Australia, Brazil, Colombia, Germany, Honduras, Hungary, Mexico, New Zealand, Norway, Poland, Portugal,
Romania, Singapore, South Africa, Spain, Sweden, Switzerland and the United Kingdom. For example:
• The Reserve Bank of Australia has made regulations under legislation enacted to give it powers over payments systems. A regulation controls the
costs that can be considered in setting interchange fees for Visa credit and debit cards, but does not regulate the merchant discount charged by
any payment system, including competing closed-loop payments systems.
• New Zealand's competition regulator, the Commerce Commission, filed a civil claim alleging that, among other things, the fixing of default
interchange rates by Cards NZ Limited, Visa International, MasterCard and certain Visa International member financial institutions contravenes
the New Zealand Commerce Act. A group of New Zealand retailers filed a nearly identical claim against the same parties before the same
tribunal. Both the Commerce Commission and the retailers seek declaratory, injunctive and monetary relief.
• In March 2006, Banco de México, the central bank of Mexico, reached an agreement with the Mexican Banks Association to implement a new,
value-based interchange methodology. As part of Banco de México's transparency policies, details of the new interchange rates have been
publicly disclosed and are available on Banco de México's web site.
• In December 2007, the European Commission adopted a decision that MasterCard's multilateral interchange fees for cross-border payment
transactions within the European Economic Area violated European Community Treaty rules on restrictive business practices and must be
withdrawn within six months.
Regulatory actions such as these, even if not directed at us or if affecting a geographic region in which we do not operate, may nonetheless increase
regulatory scrutiny of interchange fees. If we cannot successfully defend our ability to set default interchange rates to maximize system volume, our payments
system may become unattractive to issuers and/or acquirers. This result could reduce the number of financial institutions willing to participate in our open-
loop multi-party payments system, lower overall transaction volumes and/or make closed-loop payments systems or other forms of payment more attractive.
Issuers could also begin to charge higher fees to consumers, thereby making our card programs less desirable and reducing our transaction volumes and
profitability. Acquirers could elect to charge higher merchant discount rates to merchants, regardless of the level of Visa interchange, leading merchants not to
accept cards for payment or to steer Visa cardholders to alternate payment systems. In addition, issuers or acquirers could attempt to decrease the expense of
their card programs by seeking incentives from us or a reduction in the fees that we charge. Any of the foregoing could have a material adverse impact on our
revenues, operating results, prospects for future growth and overall business.
A finding of liability in the interchange litigation may result in substantial damages.
Since 2005, approximately 50 class action and individual complaints have been filed on behalf of merchants against Visa U.S.A., Visa International,
MasterCard and other defendants, including certain Visa U.S.A. member financial institutions, which we refer to as the interchange litigation. Among other
antitrust allegations, the
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