Visa 2007 Annual Report Download - page 62

Table of Contents
laws based on an asserted 1% currency conversion "fee" assessed on members by the payment card networks on transactions involving the purchase of goods
or services in a foreign currency. Pursuant to orders of the Judicial Panel on Multidistrict Litigation, the federal complaints have been consolidated or
coordinated in MDL 1409 (In re Currency Conversion Fee Antitrust Litigation), which we refer to as the MDL Action, before Judge William H. Pauley III in
the U.S. District Court for the Southern District of New York.
The operative pre-settlement complaint in the MDL Action alleges two theories of antitrust conspiracy under Section 1 of the Sherman Act: (i) an
alleged inter-association conspiracy among MasterCard, together with its members, Visa U.S.A. and Visa International, together with their members, and
Diners Club to fix currency conversion fees allegedly charged to cardholders of no less than 1% of the transaction amount and frequently more; and (ii) two
alleged intra-association conspiracies, whereby each of Visa U.S.A./Visa International and MasterCard is claimed separately to have conspired with its
members to fix currency conversion fees allegedly charged to cardholders of no less than 1% of the transaction amount and to facilitate and encourage
institution—and collection—of second tier currency conversion surcharges. Visa U.S.A. and Visa International deny the allegations in the complaint. The
complaint also asserts claims against some of the non-Visa defendants for violation of the federal Truth in Lending Act and/or violation of the South Dakota
Consumer Protection Statutes.
Fact and expert discovery in this matter have closed. On November 12, 2003 plaintiffs filed a motion for class certification, which was granted on
October 15, 2004. On March 9, 2005, Judge Pauley issued a decision on defendants' motion to reconsider the class certification decision. The Judge ruled that
the arbitration provisions in the cardholder agreements of several member bank defendants are valid as to all of the defendants and stayed those cardholders'
claims pending arbitration. Plaintiffs moved for further reconsideration, which was denied by Judge Pauley on June 16, 2005. In addition, Judge Pauley ruled
that some cardholders of Citibank, JPMorgan Chase & Co., and, in a ruling dated December 7, 2005, Diners Club, would not be required to arbitrate their
claims. The 2005 rulings on class certification and arbitration were appealed, but the appeals are not currently under consideration.
On July 20, 2006, the parties entered into the settlement agreement discussed below under "—The Currency Conversion Settlement Agreements."
The Schwartz Action
Visa U.S.A., Visa International and MasterCard are defendants in Schwartz v. Visa International Corp. (sic), et al., Superior Court of the State of
California, Alameda County, Case No. 822404-4, which we refer to as the Schwartz Action, in which the plaintiff purports to be acting on behalf of the
general public. The lawsuit alleges that Visa U.S.A., Visa International and MasterCard wrongfully imposed an asserted 1% currency conversion "fee" on
every credit card transaction by U.S. MasterCard and Visa cardholders involving the purchase of goods or services in a foreign currency, and that such alleged
"fee" is supposedly unfair, unlawful, unconscionable and deceptive. Plaintiff contends that defendants' alleged acts violate California's Unfair Competition
Law, California Business and Professions Code §§ 17200 et seq. The Schwartz Action claims that the alleged "fee" grossly exceeds any costs the defendants
might incur in connection with currency conversions relating to credit card purchase transactions made in foreign countries and is not properly disclosed to
cardholders. Visa U.S.A. and Visa International deny these allegations.
Trial of the Schwartz Action commenced on May 20, 2002 and concluded on November 27, 2002. On April 8, 2003, the trial court judge issued a final
decision, finding that Visa U.S.A.'s and Visa International's currency conversion process does not violate the Truth in Lending Act or regulations, nor is it
unconscionably priced under California law. However, the judge found that the practice is deceptive under California law, and ordered that Visa U.S.A. and
Visa International mandate that members disclose the currency conversion process to cardholders in cardholder agreements, applications, solicitations and
monthly billing statements. The judge also ordered restitution to U.S. cardholders. The judge issued a decision on restitution on September 19, 2003, which
requires a traditional notice and claims process in which consumers have approximately six months to
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