Four Merchant Associations Sue Over Credit Card 'Interchange' Fees

Four of the nation's largest merchant associations have joined the legal battle to force credit card issuers to lower the fees they charge for processing transactions. The latest of more than 30 legal actions filed over the past several months, the class action accuses Visa USA, MasterCard Inc. and a number of major banks of engaging in collusive practices in setting their interchange fees, which are paid by the merchants each time a customer uses a debit or credit card to pay for a purchase.

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Four of the nation’s largest merchant associations have joined the legal battle to force credit card issuers to lower the fees they charge for processing transactions. The class action suit accuses Visa USA, MasterCard Inc. and a number of major banks, including Citigroup Inc., Bank of America Corp. and JPMorgan Chase and Co., of engaging in collusive practices in setting their interchange fees. The suit seeks an injunction to stop the alleged collusion as well as damages, which weren’t specified. The suit was filed Friday in federal court in New York and disclosed in a press release issued Monday by the associations. The plaintiffs — the National Association of Convenience Stores, the National Association of Chain Drug Stores, the National Community Pharmacists Association and the National Cooperative Grocers Association — represent thousands of merchants nationwide. The suit is the latest of more than 30 legal actions filed over the past several months aimed at forcing the card associations and their member banks to cut interchange fees, which are paid by the merchants each time a customer uses a debit or credit card to pay for a purchase. The fees ultimately are passed on to consumers by way of higher prices. The merchants estimated that interchange fees cost the average American household about $232 a year in 2004. MasterCard International said in a statement issued Monday that the suit “is without merit.” It accused the merchants of “wanting the benefits of accepting payment cards without having to pay for the value of the services they receive.” Visa said it “remains confident in its ability to defend interchange,” which it said was “a fair mechanism” for sharing costs. Both MasterCard and Visa noted that a federal judge in California last month dismissed one of several lawsuits brought by merchants over interchange. Teri Richman, senior vice president for research and public affairs with the National Association of Convenience Stores, based in Alexandria, Va., said merchants were upset with “the unbridled increases” in interchange fees, which currently average 1.75 percent of a transaction’s value. That is, if a customer spends $100 on a card, the merchant must pay $1.75 for processing. That amount, she said, was 2 1/2 to 3 times the rate charged in Europe and Australia. Richman also said merchants believe the fees they are paying are being used to underwrite the mileage and reward programs sponsored by the card companies and issuing banks — programs that the merchants don’t profit from. “Credit card interchange fees are the third-largest expense for many chain drug stores after rent and the cost of labor,” Craig Fuller, chief executive officer of the National Association of Chain Drug Stores, said in a statement. The first of the major interchange lawsuits was filed in June by the firm of Robins, Kaplan, Miller & Ciresi on behalf of 30 Minute Photos Etc. of Irvine, Calif., and several other small retailers, in U.S. District Court in Connecticut. Robins, Kaplan also filed the latest merchant suit, this time in U.S. District Court for the Eastern District in New York. In July, seven big retail chains led by Kroger, Albertson’s and Safeway, filed a price-fixing suit against Visa in Federal District Court in Manhattan. The merchants said that their case and the other will be reviewed by a judicial panel is Asheville, N.C., on Thursday to determine whether they should be consolidated and where they should be heard. In 2003, Visa and MasterCard agreed to pay $3 billion to retailers and to reduce the fees it charged for debit card transactions. The settlement came in a class action suit brought by Wal-Mart Stores Inc., Sears Holdings Corp. and other retailers that accused the card companies of using their dominance in the credit card market to force them to accept their debit products and to extract high fees for the debit transactions. In 2001, a federal court in Manhattan required Visa and MasterCard to drop rules that prohibit their member banks from also issuing American Express or Discover Cards. The case, brought by the Department of Justice, eventually was appealed by the card associations to the U.S. Supreme Court. The Supreme Court declined to review the case in 2004. Copyright 2005 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.

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