Visa and American Express Settle Legal Dispute

A 2004 anti-trust suit brought against Visa, MasterCard and their member banks has been brought to a close, at least for Visa, as the card giant agreed to pay rival American Express in a settlement totaling $2.25 billion. The suit alleged that Visa deliberately engaged in anti-competitive practices, essentially locking American Express out of the bank-issued card market.

According to Visa, the settlement will be funded by members of Visa USA--not Visa Inc. itself--through the company's retrospective responsibility plan, a series of agreements with U.S. financial institutions to fund financial obligations of certain litigation, including this case. The settlement agreement is contingent upon Visa USA member approval and would end all current litigation between American Express and Visa USA, Visa International and their members related to this issue.

Under the proposed agreement, American Express will receive $945 million from Visa and an additional payment from the bank defendants by March 15 and no later than March 31, 2008. Beginning March 31, 2008, Visa will pay American Express an additional amount of up to $70 million a quarter for 16 quarters, for a maximum total of $1.12 billion.

"Visa is doing what is in the best interests of its membership and the new organization," said Visa Inc. CEO and chairman Joseph Saunders, in a release. "Our retrospective responsibility plan and these settlement agreements reduce risk and uncertainty for our members and Visa. I believe this is a positive resolution for Visa and its financial institutions."

The settlement leaves MasterCard holding the bag as the sole defendant in the case. "The size of this settlement, along with earlier court rulings, underscores the seriousness of the damage done by the illegal boycott," said Kenneth Chenault, chairman and CEO of American Express, in a statement. "We plan to move forward with the litigation to hold MasterCard accountable for the illegal actions that blocked banks from working with us for many years and to seek full compensation for the value that would have been generated for our shareholders.

"At a time when weakness in parts of the economy is affecting many financial services companies, the settlement will give us greater flexibility and confidence to meet our financial goals while continuing to fund business building initiatives and support future acquisitions."