Billions of dollars could be at stake in debit card lawsuit

Northwestern Financial Review, Sep 15, 2001 by Bengtson, Tom

The Wal-Mart class action suit against Visa and MasterCard is winding its way through the New York U.S. District Court and community bankers might want to keep an eye on the outcome. Earlier this year, the case was granted class action status, which means thousands of merchants around the country could participate in a settlement. Many of these merchants may be your small business customers.

The case involves a group of 18 merchants who don't like the "accept all cards" rule that Visa and MasterCard enforces with merchants who use their credit cards. The rule means a merchant that decides to accept debit cards must accept Visa and MasterCard debit cards if they want to continue accepting their credit cards. The issue is important because Visa and MasterCard debit card transactions are conducted off-line, while other debit cards offer online transactions. The off-line transactions, which rely on the old signature technology, cost merchants more to process than the newer, online cards, which rely on the use of a personal identification number. The PIN-based transactions are faster, more secure, and less expensive to process.

Credit card usage is still far more common that debit card usage, but debit card usage is on the rise. Experts predict that by 2005, debit card usage will be as common as credit card usage. Debit cards should offer merchants a way to reduce expenses but if they are forced to accept signature-based debit cards, their costs will go up.

In the United States, merchants almost have to accept Visa and MasterCard credit cards. These credit cards organizations should not be able to leverage their market dominance to force merchants to accept a more-- expensive debit card product. Merchants should have the opportunity to accept or reject the signature-- based debit cards regardless of whether they accept Visa and MasterCard credit cards.

It will be interesting to see how it plays out in court. A final decision could be a long way off yet, and keep in mind that Visa and MasterCard are also fighting separate allegations brought against them by the U.S. Department of Justice. If the merchants in the Wal-Mart case, however, effectively make their case and win the lawsuit, merchants all over the country stand to collect a piece of what could be a billion-dollar settlement.

The Community Bankers of Wisconsin are commemorating their 20th anniversary with a move to new offices. In August, the association moved into the new State Bank of Cross Plains building on Madison's west side. Lee Swanson is president of the bank and also one of the founders of CBW, which was started as the Independent Bankers Association of Wisconsin. Back in 1981, the association used offices in the Bankers' Bank of Madison, Wis., and for the last several years has been working out of offices on County Road M in Madison.

Allen Olson, president of the Independent Community Bankers of Minnesota, has been appointed to the Center for Rural Policy and Development by Minnesota Gov. Jesse Ventura. The center identifies social and economic issues in rural Minnesota and, through alliances and partnerships, finds practical solutions for problems. The center, located at Minnesota State University in Mankato, consists of 16 people.

Also, Olson reports his chances of winning an appointment in the Bush administration have fallen off in the last few months. The appointment he was hoping to get traditionally goes to a Great Lakes State native and Olson is from North Dakota.

Banking association staff members in Washington, D.C., seem to be engaged in a game of musical chairs. Ed Smith, the long-time editor of Bankers News published by the American Bankers Association, has retired from ABA and accepted a communications job with the Conference of State Bank Supervisors. There, he will work with Mary White, who also joined CSBS recently after working for many years at ABA. White, a former communications director for the Nebraska Bankers Association, now is writing the CSBA Examiner, the organization's weekly newsletter. Taking Smith's place at ABA is Brian Nixon, who has been the editor of the magazine for members of America's Community Banks. Nixon will be working with his old colleague, Virginia Dean. She is now the executive director of communications at ABA but years ago worked in communications at the Independent Community Bankers of America, where Nixon was editor of the ICBA magazine.