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Visa U.S.A.'s rule preventing competing credit card companies from issuing Visa not only hurts Sears Roebuck & Co.'s chances to make more money, but an economist said the rule harms consumers as well.

Brigham Young University economics professor James Kearl said Visa's restrictive membership keeps credit card prices high while decreasing the number of cards available to consumers.He added that Visa's 10 largest members, which issue 50 percent of the nation's Visa cards, want to limit membership to protect their market share.

"Big isn't bad, depending on how it comes about," he said.

Kearl's testimony ended the second week of anticipated four-week trial over Sears' contention that Visa has violated federal anti-trust laws by prohibiting the giant retailer from issuing Visa cards as well as its own Discover card.

Kearl was hired as an expert witness by Sears' financial arm Dean Witter Financial Services, which issues the Discover card and would issue the Visa card. Despite Sears' recent announcement to sell its financial services business, Dean Witter will pursue its plans to issue Visa cards.

The trial is taking place in federal court in Salt Lake City because Dean Witter would issue its proposed Prime Option Visa card through a defunct Sandy, Utah, savings and loan it acquired in 1989. Analysts say a victory for Sears could result in credit card rates falling as a result of further competition.

Kearl would agree.

He explained to the 10-woman, one-man jury Friday that Visa dominates the credit card market. In 1991, the Visa card accounted for 45.6 percent of the total charges made by consumers using one or more of the nation's top five general purpose credit cards, Kearl said. Sears' Discover card accounted for 5.5 percent of total charges.

Kearl further illustrated Visa's market strength by pointing out that competition from the Discover card - which Visa has characterized as one of the great success stories in American commerce - hasn't resulted in Visa members responding by lowering their interest rates.

The Visa credit card is very lucrative for banks and other issuers, Kearl testified, noting that 4,500 new members have joined in the past 10 years to get a piece of the profits. Notwithstanding the dramatic surge in membership, 10 of Visa's 6,000 members issue about half of the credit cards, Kearl said, with the largest issuer being Citibank.

But when Sears wanted to join, the Visa board adopted a rule in 1989 that prohibited the issuers of Discover, American Express or any other card the board deemed a direct competitor to Visa.

Kearl said that rule constitutes a harmful "exercise of market power" by Visa members protect profits by keeping their prices up and reducing the number of credit cards available on the market.

Sears said its proposed Visa card would have no annual fee and impose a 9.9 percent interest rate on 60-day balances, and a 15.9 percent long-term rate.


Credit Cards

Amount charged in 1991

American Express 20.5%

Discover 5.5%

Diners Club Carte Blanche 2.0%

VISA 45.6%

Master Card 26.4%

TOTAL: $374 Billion