[Congressional Record Volume 141, Number 97 (Wednesday, June 14, 1995)]
[Extensions of Remarks]
[Pages E1235-E1236]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


             INCREASE COMPETITION AMONG CREDIT CARD ISSUERS

                                 ______


                        HON. CHARLES E. SCHUMER

                              of new york

                    in the house of representatives

                         Tuesday, June 13, 1995
  Mr. SCHUMER. Mr. Speaker, I have long been an advocate of increasing 
competition among credit care issuers, so that consumers may be offered 
the widest possible choice and pay the lowest possible fees and 
interest rates. I have also spoken before about a particular case of 
anti-competitive, anti-consumer behavior by VISA, the dominant issuer 
of credit cards in the United States. Unfortunately, this case remains 
alive because the Tenth Circuit Court of Appeals overturned a jury 
verdict in the lower courts that found VISA guilty of violating Federal 
antitrust law when it prevented Dean Witter from offering VISA cards to 
customers of a bank it owns. Dean Witter has appealed the case to the 
Supreme Court, where a petition for certiorari is currently 
pending. [[Page E1236]] 
  I would like to read into the Record an article on this case by 
Professor Lee Richardson, past president of the Consumer Federation of 
America and former acting director of the U.S. Office of Consumer 
Affairs during the Carter administration. It was published in the Wall 
Street Journal on May 23, and in it Professor Richardson clearly lays 
out the stakes in this case for ``a market that affects the financial 
opportunities of tens of millions of American consumers.'' I fully 
concur with his view that ``the Supreme Court should be willing to 
listen to both sides,'' and that a writ of certiorari should be granted 
accordingly.
              [From the Wall Street Journal, May 23, 1995]

                   Let A Thousand Credit Cards Bloom

                          (By Lee Richardson)

       ``VISA--It's everywhere you want to be.''
       At least that's what VISA's marketers want us to believe. 
     But unless the Supreme Court decides to overrule a recent 
     appellate court decision about who can and cannot offer VISA 
     cards, America's most prominent credit card will only be 
     everywhere VISA wants it to be, to the detriment of 
     consumers.
       VISA's presence at some 3 million merchants (and in 180 
     million wallets and purses) allows it to dominate the 
     domestic credit card market. But because VISA--an association 
     of banks--determines who and under what conditions an 
     organization may issue its card, the company maintains a 
     tight grip on what options are actually available to 
     consumers.
       Since 1991, VISA has barred MountainWest Financial Corp. 
     from issuing its card, ostensibly because MountainWest is 
     owned by Dean Witter, which also issues the rival Discover 
     Card. That seems strange because Citicorp, one of VISA's 
     largest members, has long offered its own competing Carte 
     Blanche and Diners Club cards. Indeed, almost all of VISA's 
     members also offer MasterCard, VISA's chief competitor.
       Thus, facing what it viewed as baldly anti-competitive 
     practices, in 1991 Dean Witter went to U.S. District Court in 
     Salt Lake City. Although a jury unanimously determined that 
     VISA was significantly inhibiting competition, the 10th 
     Circuit Court of Appeals reversed the jury's decision last 
     September.
       Now Dean Witter has asked the Supreme Court to review the 
     case. Should it be accepted by the court before the end of 
     this term, the case will undoubtedly become a critical test 
     case in antitrust law.
       More important, it could potentially establish a landmark 
     ruling for the tens of millions of American consumers who 
     want a more competitive and less costly credit card market--a 
     market in which American consumers' credit card debt stood at 
     more than $280 billion early last year, outstripping their 
     auto loan debt. Consumer credit card charges totaled $474 
     billion in 1993 and are projected to nearly triple to $1.2 
     trillion by the year 2000.
       So, until the Supreme Court renders a decision, the facts 
     of the case provide us with a window into the rigid world of 
     the charge card giant, revealing how far VISA is willing to 
     go to maintain the high cost of credit.
       Most consumers probably wonder why VISA should want to 
     prevent a legitimate organization from issuing its cards. 
     After all, VISA is a relatively open organization whose 6,000 
     members issue the card, charge annual fees, collect payments, 
     and charge interest. All those members compete against each 
     other for customers. The idea that adding one more member to 
     the VISA family would pose a threat seems illogical.
       An explanation may be found on the way that Dean Witter has 
     chosen to compete in the lucrative credit card market. It 
     successfully shookup that market with the Discover Card in 
     the late 1980's, and it was prepared to do so again with its 
     VISA program in the 1990s--by offering a card with no annual 
     fee, a generous $3,500 credit line, and an initial interest 
     rate of just 12.9% on each new purchase. VISA's 10 largest 
     bank card issuers at the time--who collectively controlled a 
     majority of all bank card business--were almost uniformly 
     charging a sizable annual fee and a 19.8% interest rate. What 
     Dean Witter was doing, in effect, was introducing a very 
     unwelcome spirit of price competition into a credit card 
     organization whose members were comfortably enjoying over 70% 
     of the volume of the entire American market for general-
     purpose charge cards. So it is no wonder that the prospect of 
     a Dean Witter VISA card sent tremors through VISA.
       VISA had good reason to believe that Dean Witter's lowest-
     cost card could prove a threat to profits. By one estimate, 
     every 1% decline in credit card interest rates translates 
     into roughly $1.7 billion that consumers won't have to pay. 
     Similarly, The Wall Street Journal estimated that the 
     elimination of credit card annual fees could reduce issuer's 
     profits by up to 40%.
       To VISA, these numbers are no theoretical accounting 
     exercise. In 1991, when VISA learned that Dean Witter, 
     through its MountainWest bank, intended to launch a VISA 
     card, VISA invoked a bylaw prohibiting membership to any 
     institution that offers other cards deemed competitive by 
     VISA's board. It is hard to believe that VISA's suddenly 
     invoked bylaw is anything other than a transparent maneuver 
     intended to limit the effectiveness of Dean Witter and other 
     aggressive new competitors.
       What is really going on in the legal dispute between Dean 
     Witter and VISA is a battle over how competitive the future 
     market in credit cards will be. The truth is, the market is 
     not nearly competitive enough, and most consumers know this. 
     In the early 1990s, the U.S. Senate, in response to public 
     outcry, passed a bill that, had it become law, would have 
     arbitrarily capped the interest rates on credit cards.
       Fortunately, there is probably a better way than heavy 
     handed federal regulation to meet consumer demands. Today, 
     most of the top 10 issuers of bank credit cards still charge 
     an annual fee, and one charges interest rates of as high as 
     21.9% a year. Surely consumers would benefit from
      opening this credit card market to new and more aggressive 
     competitors.
       VISA's strategy, as Dean Witter proved at trial, is two-
     pronged: First, it wants to head off a major increase in the 
     level of competition within VISA from new competitors like 
     Dean Witter. Second, it hopes to scare off other financial 
     institutions that might want to follow Dean Witter by 
     introducing their own proprietary card, and thus increase 
     competition against VISA.
       The strategy is working. No new competitor has entered the 
     market with a proprietary card since 1985. And, if the 
     Supreme Court allows the lower court decision to stand, it 
     will be a major setback for a more competitive and dynamic 
     market in credit cards. Little wonder that several of the 
     established banking associations are lining up behind VISA on 
     this issue.
       But what is at stake here is not the future well-being of 
     the banking industry, but of a market that affects the 
     financial opportunities of tens of millions of American 
     consumers. The Supreme Court should be willing to listen to 
     both sides.
     

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