Credit card companies suffered legal setbacks over the weekend in two cases that challenge how they manage the payments and fees they charge.
A federal judge on Friday denied Visa’s request for dismissal from a case alleging that it conspired to help MindGeek, the parent company of Pornhub, profit from child sexual abuse images.
The question the case raises is whether Visa helps others make money from distributing illegal photos, the DealBook newsletter said. The court says it may have, allowing some of the lawsuits against Visa to proceed, based on its role in processing payments for MindGeek.
The lawsuit is filed by Serena K. Fleites, who says MindGeek made use of nude videos taken when she was a minor teenager that were then posted on Pornhub. Ms. Fleets’ story was the focus of a column written by Nicholas Kristof of The New York Times in late 2020 detailing the many child sexual abuse videos available on Pornhub and how these videos turned the lives of those featured in the videos.
“If Visa was aware that there was a significant amount of child pornography on the MindGeek sites, which would have to be accepted by the court as valid at this point in the proceedings, it would have been aware that it was addressing monetization of child pornography, and the transfer of funds from advertisers to MindGeek for advertisements that play alongside child pornography such as plaintiff videos,” the judge supervising the case, Cormac J. Carney of the US District Court for the Central District of California, wrote in his decision.
The judge’s unusually strong language in denying a Visa denial raises the alarm for payment processors. Judge Carney wrote that it was not “fatal speculation” that the plaintiff would say that Visa bears direct responsibility for MindGeek’s “monetization” of child sexual abuse images. The decision suggests that companies may not be able to easily distance themselves from accusations of wrongdoing by their clients.
Visa, in its motion to reject, argued that any decision against the company would upend the financial and payments industries, forcing payment processors to monitor billions of transactions.
A company spokesperson said in a statement that Visa condemns “sex trafficking, sexual exploitation and child sexual abuse material as repugnant to our values and goals as a company.” He added that Visa does not tolerate the use of its network for illegal activity and continues to believe it is an improper accuser, calling the ruling “disappointing” and saying it “mischaracterizes Visa’s role.”
Despite this, the judge wrote that Visa’s argument was “reminiscent of a ‘too big to fail’ reluctance about the financial industry in the 2008 financial crisis,” and said that requiring Visa not to allow its services to be used to facilitate illegal activity was not a long order.
In a separate case, the Walt Disney Company late Friday filed an antitrust lawsuit against Visa and Mastercard, an offshoot of a 2005 lawsuit against credit card companies over interchange fees, which charge merchants for every transaction and pay it to the issuing bank. the card.
Many companies that rely heavily on credit card purchases, such as retailers, argue that holding credit card companies in the market allows them to effectively collude to fix those fees. They say the result is higher prices for customers.
The lawsuit stems from a settlement of approximately $6 billion in 2012. The initial settlement included an agreement between Visa and Mastercard to reduce the cost of processing transactions for eight months. But lawmakers, including Senator Richard J. Durbin of Illinois, argued that the perks offered by credit card companies were not enough.
Some major retailers, such as Walmart, have opted out of the settlement, hoping to get better terms themselves, as Amazon did this year. This means that the lawsuit could be Disney’s way of lobbying for money, better terms with credit card companies or both.
Disney claims that Visa and Mastercard used corporate maneuvering to disguise their control of the industry. When Visa and Mastercard were private companies, they were backed by thousands of financial institutions, including large banks such as JPMorgan Chase, that were taking exchange fees.
When payment processors went public, in 2006 and 2008, they created a perception of segregation from banks, which some analysts said was aimed at easing regulatory oversight.
“If it’s one company, they hope they won’t be seen as a banking cartel,” Harry First, a law professor specializing in antitrust at New York University, told DealBook. “One company can set its own price and do whatever it wants.” (The strategy is similar to the one the National Football League unsuccessfully used in arguments before the Supreme Court years ago.)
Disney says in the lawsuit that the company’s structure has changed, but the behavior of credit card companies has not. Disney says that the beneficial fees that Visa and Mastercard introduced to banks remain, and that the two companies dominate the industry, driving up costs.
“Visa and Mastercard dominate the debit card market.” “Visa and Mastercard combined accounted for about 75 percent of total purchase debit volume in 2004 and account for more than 80 percent today.”
Fees remain the focus of legislative action as well. Mr. Durbin and a colleague plan to propose a bill to target them.
“We do not expect a lawsuit to be filed against this matter and expect a decision to be announced in the near term,” a Mastercard spokesperson told DealBook. Visa declined to comment on the record.