Mr. Duncan MacDonald

GLG News by Mr. Duncan MacDonald, Consultant

What GAO card study means to interchange legislation & NY lawsuit.

November 20, 2009

Analysis of:GAO: Let Card-Fee System Stand | online.wsj.com

The GAO study of bankcard interchange fees is a mixed bag for the industry. It upholds the practice (in contradiction to the lawsuit against the practice in New York) but points to numerous ideas about how its excesses can be reduced. The latter could propel the Welsh bill in Congress toward enactment. It would allow merchant actions to pressure issuers to accept lower interchange fees. The study's ideas could also play a role in crafting a settlement of the NY suit.

Populist Politics Threaten Card Industry Recovery & Survival

November 19, 2009

Analysis of:US Credit Card Sector Faces Punitive Hostility | www.ft.com

The letter in today's FT (I am one of the authors) questions whether new and proposed legislation by Congress can kill the credit card industry.

Retail discounts won't revive our economy

November 9, 2009

Analysis of:Catering to the Recession Mentality | online.wsj.com

The article is about the struggle of retailers to lure consumers to stop worrying about the economy and start spending again. Their bait is aggressive discounting. The question not only is whether it will work but whether other factors will wipe out the best laid discounts.

Loss of arbitration of cardholder disputes could sink card industry

October 15, 2009

Analysis of:Turmoil in Arbitration Empire Upends Credit-Card Disputes | online.wsj.com

Although the article is about an investor's failed bet on arbitration of card disputes, the bigger fail will belong to the card industry -- the 1 billion bank and private label cards held by 200 million consumers. Issuers of those cards have all but lost the right require arbitration and the enormous protection arbitration brings against class actions. With the NAF gone kaput and the AAA refusing to fill the void, issuers now face massive, potentially crippling new risks .

Threats to make CARD Act worse and to regulate interchange fees

October 6, 2009

Analysis of:Banks Face Pressure to Bend on New Agency - American Banker Article | www.americanbanker.com

The article is about the wrangling in Congress to enact a so-called "Consumer Protection Agency." But it carries a threat to bankers. If they don't stop trying to block a CPA, Congress will enact piecemeal bills that will prevent card issuers from being able to reprice in response to the CARD Act and will regulate interchange pricing downward.

Bankcard industry lobbies Congress to leave interchange fees alone

September 22, 2009

Analysis of:Lafferty Group - Interchange battle rages on | www.lafferty.com

The primary story here is not the card industry's standard defense of bankcard interchange fees. It is that Visa and industry trade associations are responding to the clear and present danger that an angry Congress is going to side with merchants by enacting a law to limit interchange fees. Their defense of the fee is that polling of consumers shows a wide majority in favor of charging merchants for accepting cards. But it doesn't address whether current fees are too high and unfairly applied.

Bank stocks will crumble in the coming months

August 14, 2009

Analysis of:Stocks Slip as Banks Pull Back | online.wsj.com

The WSJ article suggests a modest, temporary pullback for banking stocks amidst all the recent glowing reports that the Great Recession is over. It is not over. It is going to get much worse, precisely because of a crisis that is about to erupt for the bankcard industry.

Turmoil at Visa or a hopeful turn in the road?

July 28, 2009

Analysis of:Visa Says Its President Steps Aside | online.wsj.com

The termination of Visa's president reflects the crisis in the bankcard industry. Since its IPO, investors, issuers and merchants been waiting for Visa to lead the industry to new heights. That has not happened. In fact, things have gotten worse. Cardholders, merchants, Congress and states are in rebellion against the industry, which has all but given up on innovation.

Is interchange protection a Custer's last stand for the bankcard industry?

July 16, 2009

Analysis of:JPMorgan's Profit Soars Despite Downturn - NYTimes.com | www.nytimes.com

The article reveals the growing, almost populist attack against bankcard interchange pricing.  Heretofore, merchants have challenged the fee via lawyers, lobbyists and trade associations.  Now it is trying to enlist cardholders, as if taking advantage of the enormous public distrust of banks and card issuers.   The industry appears to be digging it its heels, perhpas reflecting a fear that issuers cannot absord any additional revenue losses without signifigantly and permanently damaging the product, not to mention the bankcard systems.  The new CARD Act forces the industy to absorb tens of billions in new costs and restricted revenue streams.  Doing the same on interchange could be more than banks can handle.

Why are merchants in the EU resuscitating their war against bankcard interchange fees?

June 16, 2009

Analysis of:Financial Times FT.com | www.ft.com

The battle by merchants in the EU against bankcard interchange fees has been going on for over a dozen years.  A Eurocommerce complaint to the EC to reinvigorate the battle rasies questions.  Has the EC slowed its concern about the issue and if so why?  Is Eurocommerce fearful that the EC now sympathizes with card issuers, perhaps because of the banking crisis?  Or is the Eurocommerce filing an attempt to close the war in its favor?  Does it reveal new information and arguments?  Does it exploit the populist anger in the EU against the banking industry to win Commission support?  The Eurocommerce filing iwill be important to the issue in the US if it achieves a cache in Congress and is sophisticated enough to merit disclosure in court documents in New York.  If it is more of the same, it could backfire.

SEC decision could reduce bankcard exposure in interchange class action

May 28, 2009

Analysis of:Citi, SEC Are in Talks to Settle Asset Probe | online.wsj.com

If as suggested in the article the SEC decides to reduce Citi's exposure to damages for securities violations because it is now co-owned by the government and receiving TARP money, why shouldn't the same logic apply to the banking industry's potential exposure in the NY interchange lawsuit?  In that case, merchants are seeking tens of billions in damages and equal amounts in interchange concessions going forward.  Presumably, such exposure would worsen the banking crisis and the goals of the Obama administration to resurrect banks financially.  Unquestionably, the government has a considerable stake in the outcome of the case.  How much will it be worth to each side?

Obama's Nominee to the High Court is Pro Class Action, Pro Trial Bar

May 27, 2009

Analysis of:News Analysis - Nominee's Rulings Are Exhaustive but Often Narrow - NYTimes.com | www.nytimes.com

Sonia Motomayor authored the most radical class action certification decision in US history in 2001.  In an antitrust lawsuit by Wal-Mart and other retailers against Visa and MasterCard, she upheld a lower court decision that created the first class action ever between two industroies crucial to the US economy -- 6 million retailers vs. 10,000 bank issues of credit cards.  In doing so, she also radically lowered the standards plaintiffs must meet to obtain a certification of a class.  Oddly, she based her decision on a class standard for discrimination cases.  Her decision was so radical that her court, the 2nd Circuit Court of Appeals in New York, several years later totally repudiated her decision.  Sotomayer's decision made the 2nd Circuit the easiest in the US to get a certification.  The decision that reversed hers was so sharp that it made the 2nd Circuit the hardest for certifications.

Congress poised to tackle bankcard interchange pricing

May 14, 2009

Analysis of:Paying With Cash Could Soon Pay Off | online.wsj.com

Senator Dubin's bill modestly will open the door to allow merchants to give discounts to consumers who pay in cash instead with credit or debit cards.  As such, it will elevate and thereby politicize another contentious charge by bankcard issuers, the consequence of which could further alienate banks from their customers.  The discount plus the bad politics could further erode bankcard transactions, something the industry cannot afford amidst skyrocking writeoffs and a new Bill oF Rights law that will significantly threaten non-APR fees.

Congress might legislate reductions in bankcard fees, costing billions for issuers

May 12, 2009

Analysis of:New Fees for Card Usage Abroad | online.wsj.com

Senator Dodd's bill to reform bankcard practices, if enacted, will subject bankcard non-APR fees to a reasonableness standard.  The idea is to limit the fees to clsoely match the cost incurred by the issuer for the infraction that generates the fee.  For example, if the fee for a late payment is $35 and the actual cost to process it is only $10, the latter is all the issuer will be allowed to collect.  Ditto for foreign transactions, OCL fee, etc.   Because the Dodd bill does not define the new standard, either the FRB or lawsuits would make the determination. 

Is Visa's challenge to the EC going to prevail or propogate another global round of lawsuits?

April 7, 2009

Analysis of:EU Charges Visa Europe Over Fees | online.wsj.com

When Visa fought the EC in the late 90s over interchange pricing, the EC responded with criminal threats, and Visa quickly caved.  The EC's settlement with MCI on the most recent iteration involving interchange should embolden it to play tough again.  Visa's surrender a decade ago set off a global attack in favor of merchants.  Is this the right time for Visa to go to the wall to help banks?

Is MasterCard's deal with the EC on interchange fees a global surrender on their legality?

April 2, 2009

Analysis of:Financial Times FT.com | www.ft.com

MasterCard's concessions on intra-EU interchange fees with the EC concedes the authority of the EC to regulate its and Visa's pricing practices.  Although yesterday's concessions cover only about 5% of all EU interchange fees, it will be next to impossible for MCI to avoid further and broader concessions.  In effect, MCI has conceded that its long held legal position is on shaky grounds.  Proof of the pudding is that it has given up an estimated $2B in the fees at a time when the weakened banking system desperately needs every penny it can get.  Perhaps it made a guess that governments will make up the shortfalls with taxpayer donations to the banks.  But that's doubtful in light of the extreme and growing popular resentment of bank bailouts.  In any case, MCI's surrender will severely weaken any defense Visa had in its arsenal.  It will also weaken their collective defenses in the New York court.  As such, it points the way toward a large settlement of the case within a year.

Looming bankcard financial crisis undermines merchant interchange threats in US & EU

December 3, 2008

Analysis of:America must keep consumer liquidity flowing | search.ft.com

Meredith Whitney's prediction of an impending liquidity crisis for the bankcard industry is bad news not only for profit strapped banks but also merchants whose survival depends on card transactions.  To revive faltering economies by getting consumers to spend again, bank regulators in the US and EU are unlikely to ignore merchant demands for massive reductions in interchange fees -- especially after infusing hundreds of billions of capital into the banking system.  A more likely result is that they will oblige the bankcard industry by taking efforts to support the interchange status quo.

Canadian regulatory decision weakens merchant interchange claims in New York lawsuit

December 2, 2008

Analysis of:The Competition Bureau's Letter to Financial Institutions — Duality and Dual Governance of Credit Card Networks in Canada | www.competitionbureau.gc.ca

A recent decision by Canada's Competition Bureau strengthens the defense of the bankcard industry in the interchange lawsuit in New York.  In reversing a long standing rule that prevented banks in Canada from issuing Visa and MasterCards. the decision concluded that the restructuring of Visa and MasterCard as independent companies has eliminated the risk that issuers can govern network decisions in violation of antitrust principles.  The reasoning of decision could persuade the judge in New York that the "market power" and collusion arguments of the merchants are no longer valid.    

Is unionization banking's biggest risk in '09?

November 7, 2008

Analysis of:Labor Wants Obama to Take on Big Fight | online.wsj.com

President-elect owes Big Labor a bone for its enormous support in getting him elected and Labor wants enactment of the Employee Free Choice Act more than any other political favor.  The odds would seem to favor Labor, but in turn would spell disaster for the business community.  For the first time in history, unionization of banks will become not only a distinct possibility but a strong probability.  Keep in mind that many banks in countries like France have unions.  If bank unions come to pass, what will that mean to their recovery from the credit crisis and their operations, products, service, cost management, legal status, etc.?

New Administration's Hobson's choice on bank-merchant dispute over card interchange fees.

November 6, 2008

Analysis of:Small-Business Owners Lobby to Cut Credit Card Fees | www.nytimes.com

Public anger against banks, coupled with merchant anger against bankcard issuers, will force the Obama Administration and Congress to consider legislation to resolve the merchand-card industry impasse on how, if at all, interchange fees should be calculated.  While policy makers on the one hand will not want to jeopardize revenue streams that banks desperately need to stabilize their balance sheets, on the other they cannot ignore bank charges that could put hundreds of thousands of small merchants out of business, putting an even larger number of their employees on the bread line.  The pressure of the issue could force them into a Solomon solution that creates a federal commission to regulate the fees.  A recent House bill awkwardly tried to do that and surely will be dusted off and cleaned up for further consideration.  How disruptive will might a legislative be?

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