Economy and Business News: Latest Updates – The New York Times

Economy and Business News: Latest Updates - The New York Times
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Credit card companies were dealt legal setbacks over the weekend in a pair of cases that challenge how they manage payments and the fees they charge.

A federal judge on Friday refused Visa’s request to be dismissed from a case that claims it conspired to help MindGeek, parent company of the website Pornhub, profit from images of child sexual abuse.

The question presented by the case is whether Visa is helping others make money from the distribution of illegal images, the DealBook newsletter reports. The court says it may have, allowing certain claims against Visa to proceed, based on its role in processing payments for MindGeek.

The suit was filed by Serena K. Fleites, who says MindGeek profited from naked videos taken when she was an underage teenager that were then posted on Pornhub. Ms. Fleites’s story was the focus of a column by The New York Times’s Nicholas Kristof in late 2020 detailing the many instance of videos of child sexual abuse available on Pornhub and how those videos had upended the lives of those featured in the videos.

“If Visa was aware that there was a substantial amount of child porn on MindGeek’s sites, which the court must accept as true at this stage of the proceedings, then it was aware that it was processing the monetization of child porn, moving money from advertisers to MindGeek for advertisements playing alongside child porn like plaintiff’s videos,” the judge overseeing the case, Cormac J. Carney of the U.S. District Court for the Central District of California, wrote in his decision.

The judge’s unusually strong language in declining Visa’s dismissal request raises alarms for payment processors. Judge Carney wrote it was not “fatally speculative” for the plaintiff to say Visa bore direct responsibility for “MindGeek’s monetization” of images of child sexual abuse. The decision signals that companies may not be able to easily distance themselves from accusations of misdeeds by their clients.

Visa, in its motion to dismiss, argued that a decision against the company would upend the financial and payment industries, forcing payment processors to police billions of transactions.

Visa condemns “sex trafficking, sexual exploitation and child sexual abuse materials as repugnant to our values and purpose as a company,” a company spokesman said in a statement. He added that Visa does not tolerate the use of its network for illegal activity and continues to believe it is an improper defendant, calling the ruling “disappointing” and saying it “mischaracterizes Visa’s role.”

The judge, though, wrote that Visa’s argument was “reminiscent of the ‘too big to fail’ refrain from the financial industry in the 2008 financial crisis,” and said asking Visa to not let its services be used to facilitate illegal activity was not a tall order.

In a separate case, the Walt Disney Company filed late Friday an antitrust lawsuit against Visa and Mastercard that is an offshoot of a 2005 lawsuit against the credit card companies over 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, like retailers, argue that the hold that credit card companies have on the market allows them to effectively collude to fix those fees. And they say the result is higher prices for customers.

The litigation stems from a roughly $6 billion settlement in 2012. The initial settlement included an agreement by Visa and Mastercard to reduce the charge to process transactions for eight months. But lawmakers, including Senator Richard J. Durbin of Illinois, argued that the concessions the credit card companies offered were insufficient.

Certain large retailers, like Walmart, opted out of the settlement, hoping to get better terms themselves, as Amazon did this year. That means the lawsuit could be Disney’s way of pushing for money, better terms with the credit card companies or both.

Disney claims that Visa and Mastercard used corporate maneuvering to shroud their hold on the industry. When Visa and Mastercard were private companies, they were backed by thousands of financial institutions, including such big banks as JPMorgan Chase, that were recipients of interchange fees.

When the 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’s a single company, they hoped they would not be viewed as a cartel of banks,” Harry First, a law professor specializing in antitrust at New York University, told DealBook. “A single company can set its own price and do what it wants.” (The strategy is similar to one that the National Football League used unsuccessfully in arguments before the Supreme Court years ago.)

The corporate structure changed, Disney argues in the suit, but the behavior of the credit card companies did not. Disney says that the beneficial fees that Visa and Mastercard offered the banks remained, and that the two companies dominate the industry, driving up costs.

The debit card market is dominated by Visa and Mastercard,” the suit notes. “Combined, Visa and Mastercard comprised about 75 percent of all debit purchase volume in 2004 and comprise over 80 percent today.”

Fees continue to be a focus of legislative action, as well. Mr. Durbin and a colleague plan to propose a bill to target them.

“We do not anticipate litigating this and expect a resolution could be announced in the near term,” a spokesman for Mastercard told DealBook. Visa declined to comment on the record.

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