Discover May Get $4 Billion from Visa, MasterCard Lawsuit

Credit card company Discover Financial Services could get as much as $4 billion in settling a case against Visa and MasterCard alleging anti-competitive behavior to prevent banks from offering Discover and American Express cards.

Three different industry analysts said that $4 billion would be the target in any settlement discussions. Visa and MasterCard settled similar lawsuits with American Express for about $4 billion earlier this year (“MasterCard to Pay American Express $1.8 Billion to Settle Antitrust Suit,” June 25).

If Visa and MasterCard do not reach a settlement in the case, it could cost them as much as $18 billion. That’s because Discover is claiming damages of $6 billion in its lawsuit (“Discover Seeks $6 Billion from MasterCard, Visa,” June 10) and under federal antitrust laws, any award would be automatically tripled.

“It's going to be a payday for Discover,” David Robertson, president of the Nilson Report, told Bloomberg.

Discover’s lawsuit challenges the rules that Visa and MasterCard once imposed on their member banks that prohibited the banks from issuing cards on other processing networks, like Discover and American Express. The Justice Department won an antitrust ruling against Visa and MasterCard in 2001 which prompted suits from other networks.

Discover is seeking $6 billion because it contends the two giants shut them out as the card industry grew fivefold over a 15 year period.

The timing of the settlement could prove critical as Discover reported Thursday that its fiscal third quarter earnings declined 11 percent as more consumers were behind on payments. The company said that it earned $180 million -- $0.37 per share – and income from the U.S. card unit was down 36 percent. But the earnings beat Wall Street estimates of $0.35 per share.

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