DOJ is going after payments giant Visa with a new antitrust lawsuit

The U.S. Justice Department on Tuesday went after Visa ( V ) in a federal antitrust lawsuit, alleging the company illegally used the scale of its vast card processing network to block competition.

Visa owns and controls the largest debit card processing network in the US, processing more than 60% of the nation’s debit card transactions.

According to the DOJ, Visa used its ecosystem of consumers, banks and merchants to penalize merchants for choosing an alternative debit network.

“Collectively … Visa’s systematic efforts to limit competition for debit transactions have resulted in significant additional fees imposed on American consumers and businesses and have slowed innovation in the debit payments ecosystem,” the complaint says.

According to the DOJ, Visa created a “network of contracts” with major banks and merchants that required merchants to choose Visa’s network or pay higher fees to Visa for sales transactions.

In 2022, Visa debit processing fees generated $7 billion in revenue for the company. Visa stock fell more than 5% on Tuesday.

US Attorney General Merrick Garland said Visa’s illegal behavior had deterred potential rivals, particularly fintech companies like Square’s CashApp, from entering the debit processing market.

“While Visa is the first name many debit card users see when they pull out their card to make a purchase, they don’t see the role Visa plays behind the scenes,” Garland said.

“There, it controls a complex web of merchants, financial institutions and consumers … levies a hidden fee on each of trillions of transactions, adding up to billions of dollars in taxes to American consumers and businesses annually.”

Specifically, the DOJ said Visa illegally held monopolies in two markets: the market for debit network services, which are used to withdraw funds directly from a consumer’s bank account, and the market for debit network services that are not present.

The latter is a narrower market within the broader services market, which includes traditional debit card transactions as well as fintech transactions.

Visa General Counsel Julie Rottenberg responded to the lawsuit by saying it ignored Visa’s “many competitors” in the growing debit space.

“Anyone who has bought anything online or checked out at a store knows that there is an ever-expanding universe of companies offering new ways to pay for goods and services,” said Rottenberg.

Alden Abbott, a Mercatus Center researcher and former general counsel of the US Federal Trade Commission, said the Visa case is unique for an antitrust case in that the Dodd-Frank Act sets a cap on debit card fees.

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Any antitrust analysis of Visa’s arrangements should take into account the law’s impact, Abbott said, because it could have deterred rivals from entering the market, weakened then-existing rivals and led to fewer poorer Americans having debit cards.

“It’s certainly possible that Visa’s growing market share of debit cards is due to this legal price cap rather than Visa’s anticompetitive actions,” Abbott said.

The DOJ is asking the federal district court in Manhattan to block Visa from using the allegedly harmful contracts and block it from bundling credit services or credit incentives with debit network services.

It also asked the court to stop Visa from imposing price incentives for using its network.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on X @alexiskweed.

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