Sunday, July 17, 2005

Retailers Welcome Grocer/Drug Store Lawsuit on Interchange

WASHINGTON, July 15 /PRNewswire/ -- The National Retail Federation today welcomed a new lawsuit filed against Visa USA Inc. by grocers and drug stores over credit card interchange rates charged to merchants.

"This is the second lawsuit filed against credit card interchange rates in less than a month and will help focus attention on this hidden tax that is driving up costs for consumers," NRF President and CEO Tracy Mullin said. "Everybody knows that credit card companies charge monthly interest to cardholders. But what most people don't know is that they also charge a fee to merchants and effectively require that we include it in the price of merchandise regardless of whether it's paid for by cash or credit. That drives up prices for everyone and is especially unfair for customers who pay cash."

"These fees range from pennies to a few dollars on an individual transaction, but they add up to billions of dollars nationwide every year and the amount collected has nearly doubled in the last half dozen years alone," Mullin said. "The credit card companies already earn huge profits from interest. There's no justification for them to double-dip into consumers' pockets."

Interchange is a percentage of each transaction that merchants are forced to pay every time a customer uses a credit or debit card. Visa and MasterCard together collected $17.4 billion in interchange fees nationwide in 2004, up from $9.4 billion in 1998 due to a combination of rising rates and broader use of credit cards, according to a recent Morgan Stanley report. The amount is forecast to grow to $32.4 billion by 2010. The average interchange rate was 1.75 percent last year, but Visa and MasterCard both imposed a series of increases this April and some new premium cards carry rates as high as 2.9 percent.

"This is not the first lawsuit filed against Visa over interchange rates and there is no reason to believe it will be the last," Mullin said. "These suits underscore the extreme dissatisfaction and frustration merchants feel over practices Visa has engaged in over many years. Business as usual at the credit card companies cannot be allowed to continue. This suit names only Visa, but if the court holds that the practices in question are illegal, then no credit card company should be allowed to do the same."

The lawsuit was filed Thursday in the U.S. District Court for the Southern District of New York by grocers Kroger Co., Albertson's Inc., Safeway Inc., Ahold USA Inc., and drugstores Walgreen Co., Maxi Drug Inc. and Eckerd Corp. The lawsuit alleges monopolistic practices on the part of Visa, price fixing and illegally tying products and separate network services. The complaint further contends that Visa's association rules have restrained merchants' ability to negotiate lower interchange fees. The suit seeks a declaration that Visa has violated federal antitrust laws, permanent injunctive relief barring Visa from continuing practices that violate antitrust law, legal costs and unspecified damages.

Unlike another interchange lawsuit filed last month in Connecticut, the new suit does not name MasterCard, does not name Visa and MasterCard's member banks, and is not a class action.

The National Retail Federation is the world's largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet, independent stores, chain restaurants, drug stores and grocery stores as well as the industry's key trading partners of retail goods and services. NRF represents an industry with more than 1.4 million U.S. retail establishments, more than 23 million employees -- about one in five American workers -- and 2004 sales of $4.1 trillion. As the industry umbrella group, NRF also represents more than 100 state, national and international retail associations.