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ATM Operators Need Early Injunction Against Unfair Rules

JURIST Guest Columnist Don Resnikoff of Counsel to Rubin PLLC discusses the need for injunctive relief in the ATM anti-trust case ...

JURIST previously reported that the US Supreme Court published an order stating that it would no longer hear the appeal in two antitrust suits by ATM operators and consumers against Visa, MasterCard and several banks concerning ATM fees. The suit alleges that the defendants, credit card companies and banks have agreed to keep the ATM charges high. They have implemented rules preventing independent ATM operators from setting lower ATM fees for customers that use networks that charge the ATM operators less than Visa or MasterCard.

The lawsuit was originally dismissed by the district court. The US Court of Appeals for the District of Columbia Circuit reversed the decision and ordered the case to continue in the district court. The defendants appealed the decision to the US Supreme Court, which granted certiorari and was set to hear the case in December. However, without leave from the Court, petitioners abandoned the original argument upon which the grant of certiorari was based and advanced a different argument on the merits, so the basis for the certiorari grant was no longer present. The Supreme Court in its recent order decided that its earlier grant of certiorari was improvident, so that the appeal is dismissed and the case can go forward in the district court.

With the petition for certiorari dismissed, the plaintiff ATM operators have the opportunity to proceed to a trial on their allegations of price fixing behavior by banks that make use of the Visa and MasterCard networks and competitive networks. The ATM operators seek to end the rules that impose access fees favorable to MasterCard and Visa but harmful to the operators. These rules threaten the viability of their businesses. The fees on top of high and increasing wholesale network fees from Visa and MasterCard, along with burdensome costs such as those caused by the compelled transition to EMV chip cards. (EMV stands for Europay, MasterCard and Visa and is a global standard for cards equipped with computer chips and the technology used to authenticate chip-card transactions).

The operator’s litigation challenges Visa and MasterCard Rules that allow ATM operators to charge consumers a fee — known as an “access fee” — to withdraw money. The access fee rules of Visa and MasterCard forbid ATM operators from charging a lower access fee when the debit card transaction is routed over a less-expensive network. For example, a competitor network might cost the ATM operator $ 0.15 less than Visa or MasterCard. But because the challenged rules forbid it, the operator of the particular ATM cannot pass that savings on to the customer unless it charges the same reduced fee to the users of the more-expensive Visa and MasterCard networks. Thus, the rule prevents the operator from increasing the attractiveness and potential profitability of the ATM machine by offering the customer lower access fees for using a less expensive debit card. The Visa/MasterCard access fee rules fix prices and seriously injures ATM operators and customers.

The Visa and MasterCard rules sets a price floor that eliminates any incentive for customers to use a less-expensive debit card and thus to switch away from Visa and MasterCard. In a competitive environment — an environment the ATM operators want to encourage through their litigation — the rational response of ATM owners to Visa and MasterCard’s higher prices would be to create a price differential to encourage consumers to use cards that access less-expensive networks. Because ATM services are freely substitutable — the terminal dispenses money or it doesn’t — cost is the principle differentiator between operators; that is, a customer will choose a machine that charges her $2 over one that charges $2.50.

ATM operators have been litigating for years for the right to attract customers with lower access fees if the customers use cards that access less-expensive networks. The US Supreme Court decision to dismiss the certiorari petition as improvidently granted means that at last the operators will have an opportunity to present proofs to the district court in support of their complaint allegations. The complaint alleges that defendant banks are horizontal competitors that entered into a naked price-fixing agreement with respect to the fees they charge their customers for ATM services. That agreement reduced competition between the banks with respect to both bank customers and users of ATMs of independent ATM operators like the plaintiffs. The fixed price reduced the number of ATMs and consumer choice, while increasing consumer costs. The banks’ access fee rules also facilitate competition-blocking activity by Visa and MasterCard in the upstream market for ATM network services by charging consumers supra-competitive prices.

Plaintiffs want the case to proceed as a class action and for members of the operator class to obtain treble damages. Most importantly, the operator plaintiffs ought to get prompt declaratory and injunctive relief that will redress the unlawful conduct of the banks, Visa and MasterCard and allow ATM operators to earn a fair livelihood and stay in business. That means that the courts should, as soon as possible, require Visa and MasterCard to set aside their restrictive rules so that operators are allowed to attract customers with lower access fees if the customers use cards that access less-expensive networks.

The price-fixing rules add severe costs to ATM operators and their customers on top of high and increasing wholesale network fees from Visa and MasterCard, along with burdensome costs such as those caused by the compelled transition to EMV chip cards. The operators pointed out, in a memo supporting a motion for a preliminary injunction filed with the district court some months ago, that Visa and MasterCard ATM access fee rules reduce operator revenue. The problem is further compounded by cost pressure on ATM operators coming from high and increasing wholesale network fees (thereby lowering the operators’ interchange revenue). In addition to the “fixed and flat” retail prices maintained by defendants’ anticompetitive rule and high network fees, ATM operators must deal with costs of the MasterCard deadline of October 2016 and Visa deadline of October 2017 to transition terminal equipment to accept the EMV chip cards. The EMV transition is very expensive for operators.

These burdens on ATM operators result in many independent ATM operators being pressured entirely out of existence. In addition, for ATM operators that remain in business, the Visa and MasterCard access fee rules reduce the number of ATM locations that can be cost-and risk-justified. ATM operators will find that some terminals lack sufficient volume to remain in service. Decommissioning existing ATM machines is costly and takes machines from neighborhoods that need them badly. But removal is compelled if a location fails to pay for itself. Some operators have needed to decommission a high percentage of their installed machines.

For many ATM operators, this litigation is a matter of survival. Without the ability to charge competitive access fees and attract customers it will be difficult for some operators to stay in business and offer service in locations where banks often will not go. The ATM operators need an early injunction against operation of the Visa and MasterCard access fee rules.

Mr. Resnikoff has an extensive background in anti-trust litigation. He served as Senior Assistant Attorney General in the District of Columbia and spent 20 years with the Antitrust Division in the United States Department of Justice. He also has extensive experience in the private sector and aided on the plaintiff's brief for the circuit appeal.

Suggested citation: Don Resnikoff, ATM Opertators Need Early Injunction Against Unfair Rules, JURIST - Professional Commentary, Nov. 25, 2016, http://jurist.org/hotline/2016/11/Don-Resnikoff-atm-opertators.php.

This article was prepared for publication by Kelly Cullen, an Assistant Editor for JURIST Commentary. Please direct any questions or comments to him at commentary@jurist.org

Opinions expressed in JURIST Commentary are the sole responsibility of the author and do not necessarily reflect the views of JURIST's editors, staff, donors or the University of Pittsburgh.

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