Friday, June 24, 2005

Companies Assert "Interchange Fee" On Every Charge Is Exorbitant And Unfair (Inc. Magazine)

Antitrust Suit Filed Against Visa, MasterCard

Companies assert "interchange fee" on every charge is exorbitant and unfair. By: Max Chafkin - Inc Magazine

June 24, 2005--Five small businesses filed a class action lawsuit in Connecticut Thursday charging that Visa and MasterCard have been illegally fixing the fees charged to merchants who accept their cards.

The suit alleges that by dictating so-called "interchange fees" -- a percentage of the total sale that is charged to the merchant -- Visa and MasterCard have created a non-competitive environment in which businesses cannot negotiate for lower rates. The lawsuit also seeks an injunction that would allow businesses to negotiate rates with member banks in addition to unspecified damages.
Fees vary depending on the type of card but are usually around 2%.

While Visa said that it is still reviewing the complaint, Paul Cohen, a Visa spokesperson, defended the fee structure in a statement as "a business practice that has been both successful in the marketplace and found to be legal in federal court."

Interchange fees came under fire in 2003 when Wal-Mart settled with the card companies for $3 billion dollars. As part of the settlement, the retailer won the right not to accept certain high fee debit cards, which are generally favored by banks because they bring in high revenues. Card companies argue that the high-fee premium cards are good for merchants since they attract bigger spenders.

Mitch Goldstone, whose Internet photo service 30 Minute Photos Etc. is one of the companies bringing the suit, complained that the fees have forced him to raise prices. "It is a huge hidden tax on consumers," he said.

Said Visa's Cohen, "We believe the merchants in this suit are seeking to shift their normal costs of doing business onto someone else -- the consumer."