June 30, 2010

Canada Sends In Task Force To Tackle “Bewildering” Payments System

Canada is attempting to get a handle on the bewildering explosion in new payment technologies with a task force.

Canada’s Minister of Finance, Jim Flaherty, has announced the launch of a new Task Force for the Payments System Review.  As Flaherty commented, consumers today can make payments in “a bewildering number of ways, even by tapping a cell phone against a scanner.”

One of the Task Force’s main goals will be to figure out how to introduce these new payment technologies without compromising Canadian safety and efficiency or consumer protection.  The Task Force is gearing up to provide recommendations to the Minister by the end of 2011. 

The Task Force’s mandate includes: (1)”[i]dentify[ing] public policy objectives to be pursued in the operation and regulation of the payments system;” (2) “[i]dentify[ing] and assess[ing] the regulatory and institutional structures best suited to achieving those public policy objectives;” (3) “[a]ssess[ing] and report[ing] on the safety and soundness of the Canadian payments system;” (4) “[a]ssess[ing] the competitive landscape for current participants by identifying any potential barriers for new entrants and mechanisms to improve the competitive landscape of the domestic payments system;” (5) “[a]ssess[ing] the degree of innovation in the domestic payments system and report[ing] on the challenges and opportunities to bring new and innovative products to market in Canada;” and (6) “[a]ssess[ing] and report[ing] on whether consumers and merchants are well served by the domestic payments system.”

The Task Force is chaired by Patricia Meredith, a Professional Associate and Senior Adviser to financial services and technology companies with the consulting firm Monitor Group, an Adjunct Professor at York University’s Schulich School of Business, and former Executive Vice President of corporate strategy and member of the Senior Executive at Canadian Imperial Bank of Commerce.

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Categories: International Competition Issues

    June 28, 2010

    China Edges Into Antitrust Enforcement With Break Up Of Price-Fixing Cartel

    While no one may be predicting China will be the antitrust powerhouse of the 21st Century, its days as an antitrust neophyte appear to be ending.

    China’s National Development and Reform Commission (“NDRC”) of China has levied fines and administrative penalties against more than 20 producers of rice noodles.  This enforcement action represents the first application of Article 13 of China’s Anti-Monopoly Law against a price-fixing cartel.  According to media reports, the local Guangxi counterpart of the NRDC led the enforcement efforts.

    The cartel involved competing rice noodle producers in the cities of Nanning and Liuzhou.  The first cartel began in November of 2009 in the city of Nanning and continued until January 2010.  During that time, competitors held a series of meetings that led 18 noodle producers to agree to increase prices of rice noodles. Soon thereafter, a second cartel formed in the nearby city of Liuzhou that lead 15 noodle producers to reach agreement to raise prices.  After consumer protests, the NRDC began its investigation, which eventually resulted in publication of China’s first public infringement decision under the Chinese Anti-Monopoly Law on March 30, 2010. 

    The fines ranged from 100,000 RMB (approximately $14,700 U.S. dollars) to 800,000 RMB (approximately $117,800 U.S. dollars).  Reports have also indicated that some producers took advantage of China’s leniency program and only received warnings.  China’s Price Law also played a role as local enforcement agencies restored rice noodle prices to pre-cartel levels.

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    Categories: Antitrust Enforcement, International Competition Issues

      June 23, 2010

      House-Senate Conferees Take Aim At Debit Cards

      The House-Senate Conference Committee considering financial services reform legislation is on the verge of adopting provisions that could shake up the world of debit cards. 

      After much controversy and intense lobbying by merchants and banks, key conferees have announced an agreement that preserves most of the Durbin Amendment and, remarkably, adds a critical and potentially groundbreaking new prohibition aimed at the networks and debit issuing banks.

      While the situation remains fluid and things could change, if this agreement holds the merchants have won a huge victory.

      In discussing where things currently stand, let’s start with the key provisions regarding debit interchange.

      While the Federal Reserve still will be given the power to pass rules regarding debit interchange, those rules will not apply to federal, state and local government program prepaid debit cards.  Reloadable prepaid cards, such as the cards increasingly used by the unbanked, are also exempted.

      In another change the definition of “interchange transaction fee” has been changed to prevent the Fed from regulating the fees that banks pay to Visa and other debit networks for membership except to the extent that such fees are used to undermine the interchange regulations.

      Lastly, in a potentially significant change,  the Fed can now take fraud prevention costs into account in configuring rules  aimed at capping the amount that merchants will pay  for debit interchange but such costs can only be considered if a bank demonstrates that they are complying with standards established by the Fed to reduce fraud. 

      That brings us to the most significant change that came out of the conference.  The initial legislation included a provision that prohibited the card networks from passing rules against merchants from offering discounts to favor one card network over another.  That provision has been removed.

      Instead, the agreement includes a provision that directs the Fed to adopt rules that preclude debit network exclusivity that comes about by “contract, requirement, condition, penalty, or otherwise.”  This provision could effectively nullify the partnership agreements between numerous banks – particularly some of the largest banks in the country – and Visa, as those agreements have resulted in an increasing number of debit cards bearing on the Visa and Interlink. click here for more »

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      Categories: Antitrust Legislation, Legislative Updates

        June 21, 2010

        Banks Enlist Proxies To Fight Durbin Amendment’s Curb On Debit Card Fees

        Recognizing that “credit card companies” and “Wall Street banks” may not have the most sympathetic political image these days, the payment card industry has enlisted small financial institutions as proxies to undercut support for Senator Dick Durbin’s (D.-IL) amendment giving the Federal Reserve the power to scrutinize fees imposed on merchants accepting debit cards.

        Durbin’s amendment was incorporated into the Senate version of the pending financial reform package by a surprisingly large, bipartisan 64-33 vote last month – thus the vociferous opposition campaign as House and Senate conferees got to work to reconcile the Senate’s version with a House bill that has no provision addressing interchange fees.  The conferees are expected to continue debating the potential curb on fees this week.

        Durbin’s amendment requires the Federal Reserve to establish rules requiring that debit card “interchange fees” are “reasonable and proportional” to the costs incurred by an issuer or payment network “with respect to” a transaction.  The Federal Reserve’s rules are to set such levels taking into consideration the fact that the debit cards are an electronic replacement for checks, which clear at par, and the incremental costs of a card transaction.  In contrast, debit card interchange fees currently can amount to 1 percent or more of a card transaction.  Merchants would like these fees reduced to reflect no more than actual processing costs, to ensure, for example, that merchants are not forced to pay for the costs associated with airline frequent flyer points awarded when a customer swipes a “rewards” debit card. 

        In response to concerns raised by community banks and credit unions during the drafting of the amendment, Durbin’s amendment expressly carved out from the sections coverage fees paid to card issuers that have assets of $10 billion or less.  According to Senator Durbin, the result is that only 85 financial institutions are covered by the debit interchange fee provision, including just the three largest of America’s over seven thousand credit unions.

         Nevertheless, credit unions and community banks have been at the forefront of the card industry’s efforts to ensure that the Durbin amendment is not included in the final financial reform legislation that emerges from the House-Senate conference process.  As the Washington Post put it, “credit unions and community banks say that [the exemption] isn’t enough in this case, arguing that they will be indirectly affected by any government efforts to curtail the lucrative fees. And they have not been shy in letting lawmakers know,” with a credit union trade association staffer announcing, “[w]e’re really trying to ramp up the noise this week.” click here for more »

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        Categories: Legislative Updates

          June 18, 2010

          Gulf Crisis Trumps Antitrust Concerns

          Cooperation among competitors is usually the kind of activity that raises antitrust concerns.  However, with thousands of barrels of dirty crude oil spilling into the Gulf of Mexico on a daily basis, the head of Federal Trade Commission is seeking to ease concerns that cooperation among competing energy companies to help the federal government solve the crisis in the Gulf would face scrutiny under federal antitrust laws.

          In response to a letter from Senate Judiciary Committee Chairman Patrick Leahy seeking the FTC’s position on such collaboration, FTC Chairman Jon Leibowitz wrote that “[a]lthough we must always be watchful when competitors collaborate, industry efforts to work with Federal officials and provide expertise to combat this ecological disaster are unlikely to raise concerns under the antitrust laws, and we would be unlikely to challenge such an effort.”  Chairman Leibowitz added that the “impact of the oil spill appears likely to be an enormous tragedy for the people and economy of the Gulf and we would like to help any way that we can.”

          The issue of collaboration among energy companies was raised because BP officials have acknowledged that they were not technologically prepared to deal with a disaster such as the one now unfolding in the Gulf of Mexico.  A number of BP’s competitors, including ExxonMobile, Royal Dutch Shell and Chevron, have provided support to BP and government officials to help get the oil leak under control.

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          Categories: Antitrust Enforcement

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