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A series of antitrust class actions charging VISA, MasterCard and their governing banks with colluding on fees for goods purchased abroad will proceed following a ruling by a federal judge. Southern District of New York Judge William H. Pauley III denied the bulk of motions to dismiss made by the defendants, who are accused of violating the Sherman Act by charging a 1 percent fee for foreign “currency conversion,” even where the banks incur no costs for the transaction. The lawsuits, a collection of 20 class actions sent to Pauley by the Judicial Panel on Multidistrict Litigation, also allege that consumers who purchased goods and services abroad were often charged a “second-tier” fee of an additional 2 percent, or higher. And they charge that the banks that issue the bulk of the credit cards, including CitiGroup Inc. and J.P. Morgan Chase & Co., violated the Truth in Lending Act by failing to clearly disclose the fees in statements to customers. Citicorp-owned Diners Club card is also accused of being part of the price-fixing conspiracy. Pauley also granted a motion to compel arbitration made by defendants Bank One and Bank of America, whose subsidiaries issue First USA and Bank of America Cards respectively, because their cardmember agreements contain arbitration clauses. The judge characterized as “without merit” the plaintiffs’ claims that price-fixing antitrust claims were not amenable to arbitration. The ruling last week in In Re Currency Conversion Fee Antitrust Litigation, MDL No. 1409 M 21-95, was the latest in a series of cases in which the governance structure of Visa and MasterCard has been attacked for fostering anti-competitive behavior. In the motion to dismiss the counts under the Sherman Act, 15 U.S.C. �� 1 and following, MasterCard argued that its own adoption of a currency conversion fee after VISA’s announcement of its own fee was not enough to support an allegation of conspiracy. Both associations argued that the conspiracy counts could not be sustained by allegations about the shared governance of the two associations by member banks. “With respect to MasterCard’s response to VISA’s announcement, defendants argue that plaintiffs have alleged nothing more than parallel conduct of two competitors,” Judge Pauley said. “And with respect to ‘dual governance,’ i.e. the fact that the same banks allegedly control both VISA and MasterCard, defendants argue that the complaint merely alleges an opportunity to conspire or agree.” But, Pauley said, “Conscious parallelism in pricing is one such circumstance that can provide for an inference of an antitrust conspiracy.” He added that the complaint goes further by alleging that the banks’ imposition of the second-tier fee was against their economic self-interest (absent a conspiracy to charge the same fee), and the complaint “more importantly” charges “that the effective control that the member banks of VISA and MasterCard have over both the VISA and MasterCard associations facilitates the conspiracy.” The defendants had argued that despite the dual governance allegations, VISA and MasterCard remained autonomous associations and acted independently. As to the second-tier fee, the defendants said the complaint was too vague because it charged only that VISA and MasterCard “facilitate and encourage” the “collection” of the fee. Pauley, however, said that “antitrust claims are not subject to a heightened pleading requirement.” As alleged, the judge said, “VISA and MasterCard’s role in this conspiracy was to aid and abet the process of collecting the fees by adding the second tier fee onto the transaction amount at the network level during the conversion.” TRUTH IN LENDING Pauley went on to find that neither VISA nor MasterCard can be considered a creditor under the Truth in Lending Act, 15 U.S.C. �� 1601 and following. He also dismissed with prejudice Truth in Lending claims against two defendants — Citibank (Nevada) N.A. and Household Credit Card Service Inc. — and dismissed similar claims, without prejudice against Citigroup Inc., Bank of America Corp., Bank One Corp., J.P. Morgan Chase & Co., Providian Financial Corp., Household International Inc., and MBNA Corp. Michael M. Buchman, Patrick Coughlin and Christopher M. Burke of Milberg Weiss Bershad Hynes & Lerach are co-lead counsel for the plaintiffs with Merrill G. Davidoff of Berger & Montague. Jay N. Fastow of Weil, Gotshal & Manges represented MasterCard. M. Lawrence Popofsky of Heller Ehrman White & McAuliffe represented VISA. Peter E. Green of Skadden, Arps, Slate, Meagher & Flom represented J.P. Morgan Chase. Charles E. Buffon of Covington & Burling represented Bank One Corp. Charles W. Douglas of Sidley Austin Brown & Wood represented Citigroup. Alan S. Kaplinsky of Ballard, Spahr, Andrews & Ingersoll and Alexander Geiger of Geiger & Rothenberg represented Providian Financial Corp. Mark P. Ladner of Morrison & Foerster represented Bank of America Corp., and Christoper Lipsett of Wilmer, Cutler & Pickering represented MBNA Corp.

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