VISA Braces For Costly Litigation

The world`s largest and best known bank-card network Visa recently disclosed to having added an additional $1.57 billion into a litigation escrow account that was begun in 2008. The recent deposit, the biggest in three years, is part of preparations the company is making in order to resolve accusations of price-fixing. The case is based upon the credit card interchange fees, otherwise referred to as "swipe" fees, a merchant has to pay to payment processing companies per credit card transaction.

In a statement, Visa indicated their intention to draw upon funds that are earmarked for a $2 billion Class A share buyback that was announced this year. Due to the company`s multiple-class system of shares, moving the funds into escrow will evidently result in the same outcome on earnings as repurchasing Class A stock, Visa asserts.

Merchants sued the San Francisco-based Visa along with MasterCard and assorted banks, among them JP Morgan Chase, back in 2005. The lawsuit was based on claims that the companies eliminated competition by disallowing merchants from guiding their customers to using less expensive forms of making payments. The end result of the suit may have a price tag around $4 billion and earlier this year the defendants reached an agreement that Visa would be responsible for covering two-thirds of any settlement amount. New York-based MasterCard would be held responsible for paying roughly one-eighth of the final settlement.

In transferring money away from the share buybacks, Visa said that action "will exhaust all funds available under that program," according to Bloomberrg. Visa deposited a total of $1.2 billion into the escrow account during the 2011 fiscal year which ended on September 30. During 2011 $280 million was paid out from the account, with the end balance totaling $2.86 billion.

In its annual regulatory filing made in November, Visa claimed that the uncommitted remaining $2.7 billion balance in the escrow account had been intentionally deposited "primarily with a view toward resolving" the litigation involving price-fixing.

Jennifer Brown

Jennifer Brown, an external business consultant working with a Fortune 500 company, has years of experience to her credit. Despite having a busy schedule through the day, she takes time out to write articles dealing with credit cards, payday loans and other financial aspects. She has completed her Bachelor degree in Financial Services from Columbia University and has been actively involved in various activities for the betterment of society.