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life insurance. Petitioner also received a fee of 2 percent of
the transaction amount for automated teller machine (ATM) and
check access until May 1983.
3. Annual Membership Fees
a. Petitioner’s Decision to Charge an Annual Membership
Fee
In 1980, petitioner's MasterCard business lost money because
the cost of funds used by petitioner was high compared to the
finance charge it could apply to MasterCard cardholders.
Petitioner had three types of cardholders. About 70 percent
were in the "revolver" group (i.e., those who paid less than the
balance due each month and incurred finance charges on the
outstanding balance). About 30 percent were "convenience users"
(i.e., those who used their cards, paid their balance in full,
and thus did not owe finance charges). A small number were
"inactive" (i.e., those who may have used their MasterCards as
identification but did not use them to pay for goods or
services). Convenience users generated interchange fees but not
finance charges. As a group they were minimally profitable.
The inactive group cost petitioner money but generated no income.
Petitioner decided to impose an annual membership fee to recover
some of the cost of delivering services to each group.
Petitioner began to charge its MasterCard cardholders an
annual membership fee in April 1981. Thereafter, petitioner's
credit card division derived income from commissions deducted
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