Not that I approve of MC's actions, but I think they're perfectly in their right to deny service to WL. I don't think their excuse of "illegal actions" cuts it, because as it's been pointed out, the illegality of their actions is still in a very gray area. However, I think they should be able to sever ties with a customer and I cannot see what law would prevent them from doing so in this case. WL is not in any protected class (http://en.wikipedia.org/wiki/Protected_class).

I don't like that they've denied them service, but I believe it is and should be perfectly legal for them to do so. Can you explain why you think it should be illegal?

By arbitrarily accepting or rejecting clients, they essentially determine the existence or lack thereof of these organizations. In the same way that Google has suffered legal action for alleged manipulation of search results (though I must credit them for being very consistent in that regard), MasterCard should also be accountable as not just an actor in a market, but a gatekeeper.

A market that's guarded by a couple of monolithic entities with similar interests is not open, and without credit card transactions a lot of international business is essentially impossible. I believe that's too critical an issue to be left to the whims of corporations.

The situation would be very different if we had dozens of easily available credit card providers who would take our money with no hassles. Whether you consider that a failure of the states or the corporations is no the issue at hand. The problem is one of assigning too much power to aisngle entity.

Seeing as "Political Affiliation" isn't in that list of protected classes, does that mean that a private (i.e. non-government) corporation can legally say "I won't sell to you because you're a {Republican,Democrat,insert-your-party-here}"?

"Life, liberty, and a credit card merchant account" doesn't quite have the same ring to it.

Must they also offer service to companies with bad credit or a history of fraud?

Bad credit and fraud are actually good reasons to deny a service, and fraud is, you know, an actual criminal offence that is easily demonstrable, unlike the arbitrary decision of the Department of State to not like an organization and whine about it to their corporate friends.

Actually if you read the updated story, the State Department didn't say anything to Paypal. It was Paypal's decision.

That said, Paypal is not making nearly enough on transaction fees to cover wasting a single minute of a lawyer's time. If there's even a chance of there being legal issues with an account holder, it's almost certainly in their business interest to end that account.

Don't be naive. Credit card companies have lobbies which operate in their interests and help pass legislation which favors their industry, much like other financial interests.

There doesn't even need to be explicit conversation between government officials and Visa/MasterCard for there to be a conspiracy; it's more of a matter of a gentleman's agreement to cover each other's backs.