Visa controls more than 60% of the debit card processing market in the U.S. The Justice Department accuses the company of using its market power to illegally crowd out competition and keep fees artificially high, raising costs for both merchants and consumers.

Visa controls more than 60% of the debit card processing market in the U.S. The Justice Department accuses the company of using its market power to illegally crowd out competition and keep fees artificially high, raising costs for both merchants and consumers. / AFP via Getty Images

The Justice Department sued Visa on Tuesday, accusing the company of illegally monopolizing the debit card market and therefore driving up prices for businesses and consumers.

The lawsuit, filed in the Southern District of New York, says Visa handles more than 60% of debit card transactions in the U.S. and collects more than $7 billion in annual processing fees. The company allegedly used its market power to stifle competition and keep fees artificially high, according to the suit.

"We allege that Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market," Attorney General Merrick Garland said in a statement. "Merchants and banks pass along those costs to consumers, either by raising prices or reducing quality or service. As a result, Visa's unlawful conduct affects not just the price of one thing — but the price of nearly everything."

Since late 2011, banks that issue debit cards have been required to allow multiple payment networks to handle the transactions. But Visa — and to a lesser extent Mastercard — continues to dominate the market. The Justice Department says Visa prices its services in a way that makes it prohibitively expensive for merchants to use rival networks and also pays would-be competitors to stay out of the market.

Merchants welcome the lawsuit

Retailers, who have long complained about excessive costs for processing both debit and credit card payments, welcomed the DOJ action.

"You can mandate competition," says Stephanie Martz, chief administrative officer and general counsel for the National Retail Federation. "But if what's happening behind the point-of-sale is inhibiting that, then you don't actually have competition."

"There's no question that it affects consumers as well," Martz added. "You're paying for these cards in the form of higher prices."

Mastercard was also accused of using illegal tactics to limit competition in the debit card market. The company settled a complaint brought by the Federal Trade Commission last year.

Tuesday's lawsuit is not the first time Visa has run afoul of the Justice Department. Four years ago, the government sued to block Visa from acquiring a fintech company, Plaid.

The lawsuit alleged that Visa viewed the $5.3 billion takeover as an "insurance policy" to prevent Plaid from infringing on its lucrative debit card business. The companies abandoned the planned purchase the following year.

Visa dismissed the lawsuit as meritless and promised a vigorous defense.

“Anyone who has bought something online, or checked out at a store, knows there is an ever-expanding universe of companies offering new ways to pay for goods and services," the company's general counsel Julie Rottenberg said in a statement. "We are proud of the payments network we have built, the innovation we advance, and the economic opportunity we enable."