Brazilian bank and credit card processing company sign agreement in the market of payment methods

The Administrative Tribunal of the Administrative Council for Economic Defense (CADE, in its acronym in Portuguese) approved a Cease and Desist Agreement (TCC, in its acronym in Portuguese) with Itaú Unibanco (Itaú) and its card processing company Redecard (Rede). The agreement was signed within the scope of the investigation that probes alleged practices of discrimination and refusal to contract, regarding the offer of banking services and accreditation in the Brazilian market.

The administrative inquiry that analyses the possible competition illicit was initiated in March 2016. The conducts refer to matters such as the anticipation of credit card receivables; mechanism of locking the banking domicile; practices of retaliation and tie-in sale; discrimination in the billing of banking lock rates; and incentive contracts.

As a pecuniary contribution, Itaú and Rede will collect BRL 21 million to the Fund for the Defense of Diffuse Rights (FDD, in its acronym in Portuguese). This is the largest nominal contribution ever collected by Cade in a TCC involving unilateral conduct related to administrative inquiries.

The proceeding regarding the parties that signed the TCC will be suspended until the complete fulfillment of the agreements negotiated with CADE. The inquiry will continue investigating the other represented parties: Banco do Brasil, Bradesco, and Cielo.

Credit card receivable services

The amount of daily sales through credit card constitutes a prediction of revenue to be received, known as credit card receivables. The administrative inquiry evaluates whether there would have been discrimination and refusal to contract in the concession of credit operations, backed in the credit card receivables, to the customers of the card processing companies.

According to CADE's General Superintendence (SG/CADE, in its acronym in Portuguese), there are indications that big financial institutions, most of which controllers of credit card processing companies, would be refusing to "read" the receivables of business that contracts smaller card processing companies. That imposes difficulties for these businesses to conclude operations of financing (advance capital). On the other hand, the major card processing companies, controlled by these banks, would be imposing difficulties for smaller banks to access the credit card receivables data of the businesses that contract the major card processing companies, which would prevent these businesses from anticipating their receivables.

By means of the TCC, Itaú, on behalf of itself and the financial institutions that belong to its conglomerate, commits to maintain the credit card receivables available for consultation to all the card processing companies that participate in the System of Warranties Control (SCG, in its acronym in Portuguese), as well as to offer and contract credit operations by the customers of these card processing companies in an isonomic and non-discriminatory manner.

Locking of the banking domicile

The locking of the banking domicile, in its turn, is a mechanism used by banks to retain, within the financial institution, the credit card receivables of a given client. A lock is a tool used to guarantee that the receivables offered in warranty, by a given customer, in order to obtain a credit operation, are deposited in the financial institution for as long as the lock is in force.

Even considering the rationale of the mechanism (preventing the client from migrating the receivables flow to another financial institution), SG/CADE found out that the "relationship lock" is a common practice in the banking market. The relationship lock is applied to hold the client tied to the financial institution, even if there are no active credit operations to justify its usage. In the evaluation of SG/CADE, the action configures an abuse over the right of the client to freely choose a financial institution to operate transactions, which reverberates in restrictions to the free competition in the banking market.

From the signature of the TCC on, the parties must, among other obligations, use the lock contract only in credit operations which warranties are credit card receivables. In addition, the contract must be formalized in a written document, with specific disclaimers, signed by the client.

Discrimination in the collection of rates

The charging of discriminatory rates to small and medium competitors was also reported to Cade. The complaints concern the lock fee, charged by the bank's card processing companies for the service of banking lock over the amount received by the customer’s domicile financial institution. The card processing companies would charge from their partner banks a lower fee compared to the one charged to smaller institutions.

In up to six months from the signature of the agreement, the banking lock fee must be charged in an equal percentage, applicable to all customers.

Retaliation and tie-in sales

Another practice probed during the investigation was the imposition of discriminatory conditions to customers that choose to migrate from a banking domicile to another institution, or the accreditation of non-exclusive credit card flags. For such, the institutions that control the card processing companies used their dominant position to impose difficulties ON customers that opted to migrate to competitors, doing so by offering discount rates in their exclusive flags; or by raising rates, fees and cutting lines of credit in the domicile bank, in a way as to avoid the migration of the business establishment.

In order to mitigate the practice, the parties assumed the obligation not to practice any sort of retaliation to the business (customer of the card processing company) that migrate the credit processing, as well as not conditioning the acquisition of one of their products/services to the acquisition of a product/service of their controlled card processing companies.

Incentive contracts

According to the complaints brought by other credit card processing companies, the incentive contracts were used aiming to acquire the customers’ loyalty, with clauses that impose high costs to the termination of their contracts. For this reason, the contracts would last indefinitely and perpetuate the relationship between businesses and card processing companies, imposing setbacks to competition.