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MasterCard International Inc. and Visa USA Inc. no longer can block banks from issuing credit cards from competitors after the Supreme Court declined to hear their appeal Monday. Banks that issued MasterCard and Visa credit cards had been barred from also offering credit cards from other companies, such as Discover Financial Services Inc. and American Express Co. As a result, Discover — a business unit of Morgan Stanley — filed an antitrust suit Monday against MasterCard and Visa in U.S. District Court in New York, seeking unspecified damages for its alleged anticompetitive behavior in keeping Discover out of the lucrative bank card market. American Express chairman and chief executive Ken Chenault said in an interview with The Associated Press that legal action would likewise be “a very viable, very attractive option,” but would not say when the company might make a decision. In the Supreme Court case, the Bush administration argued in court filings that removing the restriction would encourage competition and lead to more choices and, possibly, lower interest rates for consumers. The administration had won in district court and the 2nd U.S. Circuit Court of Appeals, which found the restriction was anticompetitive. About 20,000 banks issue cards only through Visa and MasterCard. American Express has been trying to persuade banks to issue its cards. Under the contested rules, banks would have to give up Visa and MasterCard cards to do that, and no U.S. bank has agreed, the Court was told. American Express and Discover have been issuing cards directly to individuals, although some foreign banks issue American Express cards. Credit card issuer MBNA Corp. said it will move forward to become the first and only U.S. financial institution to issue American Express-branded cards. Other banks are expected to follow. “We are proud to work with American Express to make greater consumer choice, flexibility and value a reality,” said MBNA chief executive Bruce Hammonds in a statement. American Express, which has built a network though card issuers outside the United States, said it will now seek to forge similar agreements with U.S. banks for what Chenault called “high worth, high spending” customers. “The reality is we’ve been waiting to have the opportunity to compete on an open playing field, and now we can,” Chenault said. “The analogy I would use is this is at the level of the phone company breakup with AT&T and the Baby Bells. This will create incredible competition, and will ultimately benefit the consumer.” Discover president and chief operating officer Roger Hochschild said Discover will be announcing partnerships with banks for both credit cards and debit cards — branded cards drawing funds from a checking account instead of a credit line — throughout the fall and into the first quarter of 2005. “We are in advanced discussions with a number of banks, and the technology is already in place to put cards in the market,” Hochschild said. A Visa executive said that the Supreme Court ruling won’t help rivals such as American Express from gaining more acceptance in the market. “They have cultivated a reputation of higher prices and exclusivity that the broader consumer market and many merchants have not embraced,” said Visa USA senior vice president Daniel Tarman. “If the question is which payment network best serves banks, and not competing interests, Visa is the clear choice.” Roy Englert, one of the attorneys for MasterCard, wrote in a Supreme Court filing that consumers have gotten better quality, prices and choices with the regulations in place. He said that Visa and MasterCard, like competitors in other industries, have a joint venture to help customers. He compared it to small businesses setting up cooperatives to get supplies at the best rate. Bush administration lawyer Paul Clement told justices in a filing that Visa and MasterCard account for 73 percent of general credit card charges. He said the two dominant card networks block “every competitively significant bank in the country from dealing with networks they do not control.” Walter Dellinger, one of Visa’s lawyers, said the Court should clarify the boundaries for acceptable competition between rivals. Without clarification forthcoming from the Supreme Court, the private lawsuit from Discover — and possibly from American Express as well — could help further define competition in the credit card industry. The suit could also be expensive for Visa and Mastercard. Hochschild said damages could be “substantial,” and that, under antitrust law, they could be tripled by the court. However, both Visa and MasterCard executives dismissed the lawsuit, saying that Discover was making up for flaws in its business model via the courts. In afternoon trading on the New York Stock Exchange, American Express shares were up 88 cents at $52.50, while MBNA shares were up 28 cents at $25.74. Shares of Morgan Stanley, Discover’s parent company, were up 5 cents at $50.61 on the NYSE. The cases are Visa USA Inc. v. United States, 03-1521, and MasterCard International Inc. v. United States, 03-1532. Copyright 2004 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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