NEW YORK (AP) â€” Fresh from winning its antitrust case against Microsoft, the government is taking on the credit card industry.
The Justice Department on Monday opens arguments in U.S. District Court in Manhattan in a trial that could force major changes in the way the Visa and MasterCard networks operate.
``This case could have the same significance for the issuance of credit cards that the Microsoft case has for the computer industry,'' said New York antitrust lawyer Harry S. Davis.
The Justice Department filed the lawsuit in October 1998, alleging that Visa USA and MasterCard International Inc. violated antitrust law by limiting competition.
The two companies currently control about 75 percent of the credit card market in the United States.
American Express, which issues Amex and Optima credit cards, has about a 17 percent share, with Discover and other cards holding the balance.
The lawsuit charged that the same group of banks control both Visa and MasterCard, lessening competition between the two networks. And it said rules adopted by both credit card associations restrict the ability of banks to do business with other card networks such as American Express and Morgan Stanley Dean Witter & Co.'s Discover card.
The result, the department said, was reduced consumer choice and slowed technological innovations in the credit card market.
In a preliminary hearing Thursday, Melvin A. Schwarz, lead counsel for the Justice Department, said the Visa and MasterCard rules are designed to severely restrict competition.
``There is no question that the output of American Express and Discover would go up if they had access to the banks,'' he said.
Visa and MasterCard have repeatedly denied the allegations and suggested that American Express, which will testify for the government, has been maneuvering behind the scenes to try to force changes in the industry for its own benefit.
Both Visa and MasterCard are set up as nonprofit associations. Representatives of their 8,500 member banks sit on their boards and policy-making committees.
Their rules allow banks to issue both Visa and MasterCard credit cards, but bar member banks from issuing other cards.
Davis, a partner in the law firm of Schulte Roth & Zabel, said that if the government wins the case, it is likely that American Express and other independent card companies will move to create joint ventures with major banks to get access to the banks' customers.
That would give a company like Amex the ability to issue more credit cards as well as introduce debit cards, which must be tied to checking or other deposit accounts, he said.
``In the short term, that would mean a greater degree of competition among banks to issue products to their customers, and a wider variety of alternatives for customers,'' Davis said. But it also could reduce the loyalty of large banks to the Visa and MasterCard networks, possibly weakening them in time, he cautioned.
Bruce Brittain, a credit card analyst in Atlanta, said he was not convinced of the government's argument that the current system limits consumers' choice.
``From the consumer's point of view, there is a lot of competition in the credit card world,'' Brittain said. ``Being able to get an Amex or Discover card from your local bank doesn't make much difference to them. They can get them now if they want by calling an 800 number, picking up a form at a restaurant, going onto the Internet.''
He said the benefit for Amex of linking up with a big bank would be that it could offer financial services beyond its traditional travel card.