Iowa Banking Law Blog

Iowa Supreme Court Dismisses Antitrust Class Action Against Visa and MasterCard

In Southard et. al. v. Visa USA Inc. and MasterCard Int’l Inc. the plaintiffs in a class action alleged that Visa and MasterCard violated Iowa antitrust laws and were unjustly enriched as a result of Visa and MasterCard’s tying arrangement whereby merchants who accepted credit cards were required to accept debit cards.  As discussed in an earlier article, Visa and MasterCard entered into a multi-billion dollar settlement with merchants as a result of this alleged tying arrangement.

The plaintiff class members claimed that under this arrangement merchants were forced to pay inflated fees which were passed on to consumers.  They asserted that they were indirect purchasers under Comes v. Microsoft, in which the Iowa Supreme Court rejected the application of the federal rule prohibiting indirect purchaser antitrust suits to Iowa’s antitrust laws. 

The Iowa Supreme Court affirmed the lower court’s dismissal of the plaintiffs’ claim.  It reasoned that the plaintiffs’ alleged injuries were too remote to occasion antitrust standing.  As to the plaintiffs’ contention that they were indirect purchasers with antitrust standing under Comes v. Microsoft the court stated that the plaintiffs were not purchasers at all.  In Comes, the “indirect purchasers” ultimately bought the Microsoft software in question.  In this case, the consumers did not purchase the product subject to the alleged anticompetitive behavior—debit processing services.  The merchants were the end-purchasers of the debit processing services; the consumers merely bought consumer goods.    

Therefore, the court made it clear that the expansive language of Comes (stating that Iowa law creates a cause of action for “all consumers regardless of one’s status as a direct or indirect purchaser) does not give standing to all consumers injured by anticompetitive behavior.  Even if adversely affected by anticompetitive behavior, consumers will not have antitrust standing under Iowa law unless they are direct or indirect purchasers of the product in question.  Being charged a higher price for other goods, even if the higher price is the result of anticompetitive behavior, will not give a potential plaintiff standing as an indirect purchaser.

If you have any questions or comments, contact Jeffrey Andersen.   

Supreme Court Holds that SEC Regulation Immunized Investment Banks from Certain Antitrust Suits

In Credit Suisee Securities v. Billing, the United States Supreme Court held that antitrust laws do not apply to certain areas subject to SEC regulation. The plaintiffs in the case alleged that the syndication and marketing techniques of a dozen investment banks and underwriters, including alleged “tying” and “laddering,” violated antitrust laws and artificially influenced the market for dot-com boom IPOs.  In denying the plaintiffs’ claim, the Court showed a broad deference to the SEC, reasoning that the alleged conduct fit squarely within SEC regulation and that the SEC had authority to regulate the conduct.  On this basis, the Court held that the SEC regulations precluded the application of antitrust laws.

The Court emphasized the SEC’s superior ability to handle these types of complex line-drawing cases.  The Court also expressed a lack of faith in courts, stating that in this type of situation “antitrust courts are likely to make unusually serious mistakes.” 

This decision could be indicative of a broader surge in regulatory empowerment.  Surely other agencies that regulate banks, telecommunications, or other complex fields also have more expertise than courts.  This case raises several questions.  To what other regulatory agencies will this reasoning be applied?  Do regulatory agencies provide a safe harbor from certain civil court suits?  What other civil actions could arguably be precluded by federal regulation?

Visa Ordered to Repeal Settlement Service Fee against Debit Issuers

In United States v. Visa U.S.A., Inc., ET Al., the U.S. District Court for the Southern District of New York entered an order requiring Visa to repeal their Settlement Service Fee (“SSF”). The SSF, implemented under By-Law 3.14, required Visa’s top 100 debit issuers to pay a fee if they moved their debit portfolio from Visa to Mastercard.

The SSF required the debit issuer to pay their proportionate share of Visa’s $2 billion class action lawsuit settlement to Wal-Mart and other retailers (Class Action Information). For example, if the debit issuer accounted for 4% of Visa’s debit volume, that issuer would be assessed a fee of 4% of the outstanding settlement balance when it switched to Mastercard. This fee, which could be very substantial, required Mastercard to offer indemnification to some issuing banks that did switch and, according to the court, prevented banks from switching to Mastercard.  This case will make it easier for banks to switch providers, potentially creating more competition among debit providers. 

For more information contact Bill Daly at bdaly@dickinsonlaw.com or Howard O. Hagen. 

Wal-Mart to Enter Prepaid Card Market

       The Financial Times has reported that Wal-Mart will partner with GE Money Bank to launch a prepaid card product aimed at the 80 million U.S. residents without a bank account.  Link to Reuters article.  Prepaid cards are a growing industry, generating a market worth $76 billion last year, according to the Financial Times.  Wal-Mart's "quasi-bank account" cards would have a $3,000 limit and would be covered by federal deposit insurance through GE Money Bank.  This news comes just weeks after Wal-Mart announced its entrance into the financial services market by offering a discount brokerage service.  Link to previous Iowa Banking Law Blog article.  After withdrawing its bid to create an industrial loan corporation in March, Wal-Mart seems intent on offering a broad range of financial services through other avenues.

       Will prepaid and other payment methods linked with cellphones be the future of banking?  Will new banking technology have the same effect on the banking industry that the internet had on newspapers?  Will the new Nonbanks be Viral Banks?  These are the questions that immediately come to mind.

First Circuit Holds that Federal Law Preempts State Regulation of Gift Cards

       SPGGC, LLC v. Ayotte is the first case to apply the Supreme Court’s decision in Watters v. Wachovia Bank, N.A.  In Watters, the Court held that federal law preempts state regulation of national bank operating subsidiaries.  Specifically, the Michigan Mortgage Brokers, Lenders and Services Licensing Act and the Michigan Mortgage Loan Act were preempted by National Bank Act provisions protecting national banks from significant state interference in the “business of banking.”  Thus, the power of an operating subsidiary of a national bank to engage in real estate lending could not be significantly impaired or impeded by state law. 

       SPGGC, LLC v. Ayotte takes Watters a step further.  It applies federal preemption to state regulation of third parties when such regulation impedes a power conferred on national banks by the National Bank Act.  In Ayotte a New Hampshire statute prohibited the sale of gift cards when the cards contained an expiration date and administrative fees diminishing the value of the card.  Even though it does not specifically regulate banks, the court held that National Bank Act and OCC regulations giving national banks the power to issue gift cards preempted the statute.  Citing to Watters, the court stated that it “is not whom the New Hampshire statute regulates, but rather, against what activity it regulates.”  Therefore, because federal law allows national banks to issue gift cards through a third party with an expiration date and certain administrative fees, the New Hampshire statute curtailing this power is preempted—even though as applied in this case, the statute only regulated a third party non-bank entity.

       This case shows that post-Watters, federal preemption will apply beyond the bounds of state banking codes into any state statute that could hamper permitted activities of a national bank.  As the scope of preemption for national banks broadens, the state charter faces yet another challenge as to the equal playing field for its products and services.  The ruling also illustrates some of the interesting issues that can arise from the growing gift card/stored value card industry. 

For further information contact Howard O. Hagen or Jeffrey J. Andersen of Dickinson, Mackaman, Tyler & Hagen, P.C.

Federal Agencies Issue Final Illustrations of Consumer Information for NonTraditional Mortgage Products

After reviewing comments on proposed illustrations, the OCC, Federal Reserve, OTS, FDIC, and NCUA have issued three final illustrations intended to help institutions implement the consumer protection portion of the Interagency Guidance on Nontraditional Mortgage Product Risks adopted in 2006.  A copy and description of the illustrations are available on the Federal Reserve website (link).  The use of the illustrations is optional, institutions are free to provide consumer information described in the Interagency Guidance in another manner.  Since the illustrations come directly from the regulatory agencies, however, the prudent approach may be to use the illustrations and tailor them to your institution’s circumstances and your customer’s needs.  Each of the agencies will post the illustrations on their web sites in a downloadable and printable form. 

If you have any questions concerning the final illustrations or the implementation of these illustrations at your institution, please contact

Jeffrey J. Andersen.