The New York case accuses the associations and their member banks of violating antitrust laws, and also says the member banks violate lending laws by not sufficiently disclosing fees. It seeks unspecified damages and injunctive relief. "This California case is going to have impact far beyond the immediate ruling," says Duncan MacDonald, a former lawyer for the credit-card division of Citigroup Inc. "The judge clearly seems to have decided that Visa and MasterCard have acted dishonestly." Visa and MasterCard say they plan to appeal the state-court decision, and say they have a strong case for having it overturned. The card associations also are appealing an unfavorable ruling on an antitrust case brought by the government. And last month they agreed to settle the case brought by Wal-Mart and other retailers. In that case, the plaintiffs accused Visa and MasterCard of illegally using their dominance of the credit-card business to grab share of the debit-card market. On the surface, the California case over currency conversion has been focused narrowly on issues of disclosure, with California Superior Court Judge Ronald Sabraw ruling that consumers weren't fully informed in their monthly statements of the fees they pay for purchases in foreign currencies. But Judge Sabraw used language that ties the case to broader allegations that the associations are big, dominant and anticompetitive in their behavior. "The court finds this to be a deceptive business practice that causes significant injury to consumers by preventing competition between the networks," said the decision. The judge found that the two associations not only issue 93% of the cards used in transactions involving more than one currency, but that MasterCard even raised its fees to match those of Visa. "It's very rare for an industry to set prices collectively for everybody," says Alan Frankel, an economist with consultant LECG in Evanston, Ill., whose testimony was quoted widely in the California court decision against Visa and MasterCard. "It is not at all clear whether that is economically efficient, let alone whether Visa and MasterCard have the legal right to do that." Lawyers for MasterCard and Visa both noted that the fees consumers pay on credit-card conversion are cheaper than those offered by currency-conversion businesses at the retail level. They also stress that it was ultimately the responsibility of the banks, not the credit-card associations, to disclose information to their customers, and that the associations shouldn't be in a position to police their member banks. They also note that California law gives judges far more latitude than federal law in determining what is unfair. Visa lawyers stress that member banks already disclose plenty of information about currency-conversion issues. The plaintiffs' side, while conceding that the banks do disclose some information in statements, note that the judge in his decision found disclosures weren't sufficient to guide consumer choice. As the legal challenges gather steam, a number of start-ups and foreign-exchange service providers are using technology to jump into the market for currency conversion. The new services allow the merchant to convert the bill into the cardholder's home currency before the customer signs the receipt. It would be up to the cardholder to decide which currency to use in settling at the point of sale. While the fees involved are comparable to what the associations and issuing banks charge their customers, the benefit of the technology is that it lets the customer know exactly how much is being charged for the conversion.

In addition, cardholders who are business travelers, a crucial market segment, would be able to expense their trips more efficiently. A German businessman could stay at a hotel in New York, for example, and get a bill in euros. The fee revenue would be split between the merchant, the merchant's credit-card processor and the providers of the technology. In the U.S., that technology is being offered by companies such as New York-based Planet Payment, which hopes to snare the business of firms that process payments for hotels and other travel-related industries. Some observers say Visa, for one, has been fighting the threat, issuing tough new rules for merchants that want to adopt the new technologies. Those guidelines require merchants to disclose to cardholders extensive details about the transaction, including the exact amount of the conversion fee. These critics say Visa is demanding rivals disclose information that they themselves argued was unnecessary in the California case. Visa counters that its rules governing these systems are meant to thwart abuses of the system. Visa, in fact, began its own conversion system in the early days of international credit-card use when some local financial institutions charged exorbitant rates. David Robertson, publisher of Nilson Report, a card-industry trade journal, said the lawsuits and the competition could ultimately erode revenue at Visa and MasterCard and many of the issuing banks. That could mean the industry will be looking for new ways to charge fees to either merchants or consumers. "Both the card-issuing banks and the associations will lose revenue," said Mr. Robertson. "Issuers will have to do something to make it up."

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