Friday, June 24, 2005

Lawsuit targets credit fees (Orange County Register)

Orange County Register, business section-page one, June 24, 2005

Lawsuit targets credit fees Irvine man seeks class-action status in claim that banks fix retailers' costs at a higher rate than is justified.

By ANDREW GALVIN The Orange County Register

An Irvine businessman is leading a rebellion by five small merchants against rising credit-card transaction fees.

Mitch Goldstone's 30 Minute Photos the lead plaintiff in a lawsuit filed Wednesday against Visa, MasterCardand a host of banks that issue the credit cards. The suit, which seeks class-action status on behalf of millions of retailers who accept payment by credit cards, was filed in federal court in Connecticut.

The suit targets so-called "interchange fees" that banks charge retailers when customers pay with Visa or MasterCard.

Fees average 1.5 percent to 2.5 percent of each transaction and are rising, Goldstone said.
The lawsuit accuses the banks of violating antitrust laws by conspiring to fix the fees at levels that aren't justified by the costs of processing transactions.

Visa said it would vigorously defend its use of interchange fees. "Our rates are determined in the open marketplace," said Paul Cohen, vice president of Visa USA, in a statement. Credit cards offer merchants increased sales and e-commerce opportunities unavailable without electronic payments, Cohen said. The lawsuit is part of an effort by retailers to pass the cost of accepting the cards to consumers, Cohen said, adding that other merchants have recently sued to be able to levy a checkout fee on customers who use credit cards.

The interchange fees are already passed along to consumers as "a hidden tax" worth billions of dollars a year, Goldstone said. He said he became incensed after Visa and MasterCard began charging higher fees in April for transactions involving frequent-flier cards, which reward users with airline miles. Goldstone told the Wall Street Journal about the issue and was quoted in an April 12 Journal article about the fees.

The publicity led to Goldstone's contact with the Minnesota law firm that filed Wednesday's suit.
Other businesses have also challenged the fees charged to process credit-card transactions. Wal-Mart Stores Inc., the world's largest retailer, negotiated a multibillion settlement with Visa and MasterCard in 2003. Home Depot Inc., Best Buy Co.and others have either won fee cuts or are in talks to do so, according to the Wall Street Journal.

Visa and Mastercard say the fees benefit consumers and merchants by covering the risk of fraud and the cost of providing funds while waiting for payment, the Journal said.
Fees average an estimated 1.7 percent of a transaction and cost an average U.S. household an estimated $232 a year, the Journal said.

Interchange fees were justified in the early days of credit cards, when transactions were conducted manually by swiping cards over carbon-paper forms that had to be shipped in the mail, Goldstone said. Today, technology has reduced processing costs so much that the fees should be eliminated, he said.

As a small-business man, "I have no way of even negotiating with MasterCard and Visa over my interchange fee," Goldstone said.

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