Injunction against Visa lets Sears issue its cards


A federal court ruling allowing Sears, Roebuck & Co. to issue Visa cards is expected to intensify competition in the credit-card business, which already is being reshaped by the entry of companies other than banks.

In a ruling in Salt Lake City Friday, U.S. District Judge David Sam granted a preliminary injunction against Visa U.S.A. Inc. that permitted Sears to issue Visa cards pending the resolution of a lawsuit Sears has filed against Visa.

The huge retailing company contends that Visa has been trying to prevent it from issuing a Prime Option Visa card, which, like Sears' Discover card, would not carry a fee but also carries the cachet and wide merchant acceptance of the Visa name.

The decision, which Visa asked the judge to reconsider yesterday, allows Sears to proceed with an ambitious plan to issue the no-fee Visa card next month to about 7 million households that are Sears customers.

Analysts said Sears' new card was a prime threat to the hold by banks on the issuance of Visa credit cards.

Visa is an association of banks that issue credit to consumers through the Visa credit card. Recently, American Telephone and Telegraph Co. issued its Universal Visa credit card, which competes with the Visa bank cards, and banks fear that their credit-card business will be undercut by such well-capitalized non-bank competitors.

"This is a considerable and substantial threat to traditional bank issuers," said Allen R. DeCottiis, the president of P.S.I., C research and consulting firm in Tampa, Fla.

"Visa banks are extremely concerned. They paid to build the Visa infrastructure, and now others are allowed access. AT&T; and Sears are two giants at the gate of Visa, and they are a threat to all other issuers."

David Brancoli, a spokesman for Visa, based in San Mateo, Calif., said the bank association opposed the new Sears card. He said that though competition among Visa issuers would benefit consumers, consumers would benefit even more from competition among different brands of cards -- for instance, Visa cards vying against Sears' existing Discover credit cards or MasterCards.

"The consumer benefits more from major brand competition than from competition within a brand," Mr. Brancoli said. "We believe that competition would be impeded by allowing a major competitor of ours like Sears to join the Visa program."

James Flynn, a Sears spokesman, predicted that the Prime Option card will be a big success because it does not carry an annual fee and because of a repayment schedule about which he would not elaborate.

But Mr. Flynn rejected the idea that Prime Option would compete with Sears' Discover card, which contributed $117 million to Sears' profits last year from about 40 million cards issued. "It won't cannibalize our other card," he said.

Besides Sears and AT&T;, Ford Motor Co. issues about 1.1 million Visa cards through its Associates Corp. consumer credit subsidiary.

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