Credit card companies have suffered legal setbacks over the weekend in a couple of cases that question how they handle payments and the fees they charge.
A federal judge on Friday turned down Visa’s request to be denied in a case claiming it conspired to help Pornhub website parent company MindGeek profit from child sexual abuse images.
The question presented by the case is whether Visa is helping others make money from distributing illegal images, reports the DealBook newsletter. The court says it may have done so, allowing certain claims against Visa to continue, based on its role in processing payments for MindGeek.
The lawsuit was filed by Serena K. Fleites, who claims that MindGeek profited from nude videos she made when she was an underage teen that were later posted on Pornhub. Ms. Fleites’ story was the focus of a New York Times article by Nicholas Kristof in late 2020 detailing the many child sexual abuse video cases available on Pornhub and how those videos had disrupted the lives of those. that were featured in the videos.
“If Visa was aware of the presence of a substantial amount of child pornography material on MindGeek’s sites, which the court has to accept as true at this stage of the proceedings, then it was aware that it was working on monetizing child pornography by moving money from advertisers to MindGeek. for advertising reproduced alongside child pornography such as plaintiff videos, ”said the judge overseeing the case, Cormac J. Carney of the United States District Court for the Central District of California.
The judge’s unusually strong language in denying Visa’s dismissal request raises alarms for payment processors. Judge Carney wrote that it was not “fatal speculation” for the plaintiff to say that Visa was directly responsible for “MindGeek’s monetization” of child sexual abuse images. The decision signals that companies may not be able to easily distance themselves from their customers’ allegations of misdeeds.
Visa, in its dismissal motion, argued that a decision against the company would upset the financial and payments industries, forcing payment processors to monitor billions of transactions.
Visa condemns “sex trafficking, sexual exploitation and child sexual abuse materials as repugnant to our values and purposes as a company,” a company spokesperson said in a statement. He added that Visa does not tolerate the use of its network for illegal activities and continues to believe it is an improper defendant, calling the sentence “disappointing” and saying it “does not characterize Visa’s role”.
The judge, however, wrote that Visa’s argument “was reminiscent of the ‘too big to fail’ refrain from the financial sector in the 2008 financial crisis,” and said that asking Visa not to allow its services to be used to facilitating illegal activities was not an order of height.
In a separate case, the Walt Disney Company filed an antitrust lawsuit late Friday against Visa and Mastercard which is an offshoot of a 2005 lawsuit against credit card companies for interchange fees, which they charge merchants for every transaction and pay to the bank that issued the card.
Many companies that rely heavily on credit card purchases, such as retailers, argue that the hold that credit card companies have in the market allows them to effectively collude to set those fees. And they say the result is higher prices for customers.
The litigation stems from a transaction of approximately $ 6 billion in 2012. The initial transaction included a Visa and Mastercard agreement to reduce the charge to process transactions for eight months. But lawmakers, including Senator Richard J. Durbin of Illinois, argued that the concessions offered by the credit card companies were insufficient.
Some large retailers, like Walmart, have given up on the deal, hoping for better deals, as Amazon did this year. This means that the cause could be the way Disney pushes for money, better terms with credit card companies, or both.
Disney says Visa and Mastercard used corporate ploys to hide their hold on the industry. When Visa and Mastercard were private companies, they were backed by thousands of financial institutions, including large banks like JPMorgan Chase, which were recipients of interchange fees.
When payment processors went public in 2006 and 2008, it created a perception of separation between them and the banks, which some analysts said was aimed at mitigating regulatory scrutiny.
“If it was a single company, they hoped they wouldn’t be seen as a cartel of banks,” Harry First, an antitrust law professor at New York University, told DealBook. “A single company can set its own price and do what it wants.” (The strategy is similar to what the National Football League used unsuccessfully in Supreme Court arguments years ago.)
The corporate structure has changed, Disney argues in the lawsuit, but the behavior of the credit card companies has not. Disney says the attractive fees Visa and Mastercard offer to banks remained and that the two companies dominate the industry, driving up costs.
“The debit card market is dominated by Visa and Mastercard, “notes the suit.” Combined, Visa and Mastercard made up about 75% of all debt purchase volume in 2004 and account for over 80% today. “
Taxes also continue to be at the center of legislative action. Mr. Durbin and a colleague plan to propose a bill to target them.
“We do not plan to initiate litigation and we expect a resolution to be announced in the short term,” a Mastercard spokesperson told DealBook. Visa declined to comment on the record.