The first suit was filed in June 2005, when several smaller merchants banded together to sue both card Associations and their member banks over similar complaints (see "Merchants Bring Interchange Lawsuit," The Green Sheet, July 11, 2005, 05:07:01 ).
On July 14, 2005, a group of retailers led by The Kroger Co., the corporate parent of Ralph's, filed suit against Visa International and Visa U.S.A. in U.S. District Court for the Southern District of New York. Kroger objects to Visa's engagement in "price fixing and restricting competition related to credit card transaction fees."
Other plaintiffs include Ahold U.S.A. Inc.; Albertson's Inc.; Eckerd Corp.; Maxi Drug Inc.; Safeway Inc.; and Walgreen Co.
The most recent suit does not list MasterCard International or its member banks as defendants. However, Visa's member banks are listed as alleged "co-conspirators" because of their direct involvement with Visa.
The major retailer chains contend, according to the text of the lawsuit, that Visa and its member banks conspire to "eliminate plaintiffs' and other merchants' ability to negotiate lower interchange fees through a set of restraints in Association rules," including the No Surcharge and Honor All Cards rules.
They claim that ever-increasing interchange costs retailers and consumers an estimated $20 billion each year.
For 2005, they expect to pay a total of $350 million in interchange fees, up more than 215% over the past five years. During that five-year period, Kroger said Visa has raised its rate 11 times.
"At a time when technology has made card authorization and processing faster, cheaper, safer and more efficient than ever, we believe that our customers should be receiving the benefit of declining interchange fees," said Paul Heldman, Kroger Senior Vice President and General Counsel. "Instead, Visa is using its extraordinary market power to profit at our customers' expense."
Visa cannot yet comment on the specifics of the suit, Paul Cohen, Visa U.S.A. Vice President said in a statement. He did say that merchants are trying to shift the burden to consumers while receiving "all the value of electronic payments," and "the marketplace, not a courthouse, is the best determinant of price."
What Are the Implications?
"These suits underscore the extreme dissatisfaction and frustration merchants feel over practices Visa has engaged in over many years," said Tracy Mullins, National Retail Federation President and Chief Executive Officer.
The question is will these lawsuits succeed in bringing about lower interchange rates? Equity research firm Thomas Weisel Partners said under certain circumstances, it is possible that lower rates could result. The firm's July 15, 2005 Financial Products Update addresses the recent lawsuits and speculates about the consequences.
"If the suits gain class action status, the card organizations may be forced to adjust their existing interchange practices and create a uniform rate system for all retailers," firm analysts Mark Sproule and Kyle Doherty wrote. They also cite precedents set by such large retailers as Wal-Mart Stores Inc., which negotiated its own individual interchange contract.
An Interchange Suit Dismissed
Less than 10 days after Kroger filed its case, the federal court in the Northern District of California dismissed a similar case involving retailer complaints over interchange fees.
In the case of Kendall v. Visa U.S.A. Inc. et al, filed last year, several merchants charged that Visa, MasterCard and a number of their member banks were in violation of Section 1 of the Sherman Antitrust Act by setting merchant discount and interchange fees.
In response to the court's dismissal of the case, MasterCard's General Counsel Noah J. Hanft said MasterCard is pleased that the court applied "existing antitrust precedent."
In his ruling, Judge Jeffrey S. White stated that an antitrust claim cannot be brought by an indirect purchaser. Since the card Associations set interchange fees to acquirers, which pass along the fees to merchants who are charged a discount fee, merchants are not direct recipients of interchange.
The National Retail Federation's (NRF) General Counsel Mallory Duncan said of the case that "no precedents were established" and "MasterCard is bragging that they squashed a fly." NRF spokesperson Craig Shearman called it a "totally insignificant case."
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