Monday, October 31, 2005

"Open letter and invitation to ACEC national chairperson, Susan Molinari" (source:

October 30, 2005

Ms. Susan Molinari

National Chairperson
Americans for Consumer Education and Competition
, Inc.
1023 31st Street, N.W.
Washington, D.C. 20007

Dear Ms. Molinari,

I applaud the monumental attention you have articulated in urging consumers to use debit cards "as a wise budgeting tool" and to also help limit overspending.

Based on your April 29th press release where you explained that "debit cards are fast becoming the card of choice for savvy consumers," as national chairperson of Americans for Consumer Education and Competition, your support can help advocate for an even better budgetary tool - cash.

Consumer groups across the nation are exploring a novel campaign for Friday, November 25th called "A Day Without Credit Cards, A Day With Cash." This national campaign on America’s busiest shopping day is being considered to draw attention to the billions of dollars in hidden taxes that consumers pay each year to Visa and MasterCard in merchant interchange fees.

This campaign would be lead by many consumer groups and only be directed towards retail stores and not ecommerce businesses. More information is available on The Credit Card Interchange Report:, which I co-edit.

In the coming days, as this campaign gains traction and media viability, your participation would especially help draw attention to the anticompetitive issues, especially as banks acquire the few remaining independent firms. It will also further your advocacy on behalf of educating consumers to better budget their spending, especially on November 25th.

Therefore, I extend this invitation for you to join "A Day Without Credit Cards, A Day With Cash." By lending your name and support, you would be prominently listed as one of the thousands of business leaders supporting this initiative.

Thank you for your consideration.


Mitch Goldstone
Co-editor, The Credit Card Interchange Report:
President & CEO, 30 Minute Photos Etc.,

Sunday, October 30, 2005

Last year's $26 billion hidden consumer tax expected to skyrocket

If you thought $26 billion in annual merchant interchange fees was way too high, that indignity is perched on the launch pad and about to skyrocket.

In a statement today, the editors of The Credit Card Interchange Report: warned that the lofty bank earnings are corroborating a frightening new hold up on Americans with even greater intensity.

What distinguishes this assault and economic threat on consumers and an old-fashion, 1800s-style train robbery is that few understand this prowl.

Visa and MasterCard, which are owned by the leading banks are eclipsing even the audacious oil industry’s record assault on consumers. The prevailing sentiment is now that the windfall gains from merchants credit card fees are expected to rocket upwards.

The banks $26 billion windfall will be eclipsed by new results due to higher gas prices, warned The Credit Card Interchange Report:

Because the banks get a piece of the action from motorists credit and debit card charges -- and with companies like ExxonMobil reporting sales of a billion dollars a day -- the ingredients are there to break records. With unbridled access to fix the prices that retailers pay, the banks could fetch billions more.


Friday, October 28, 2005

Britain's Competition Watchdog Wants to Cut Fees (The Economist)

Issuers of credit cards are unpopular everywhere these days, and Britain's are no exception. Banks are grimly hanging on to £1.5 billion ($2.7 billion) in annual revenue that will be cut dramatically if the British consumer watchdog forces the world's two biggest credit-card associations and their bank members to reduce controversial charges.

The so-called interchange fees account for around 15% of credit-card income in Britain, according to Mercer Oliver Wyman, a consultancy, a big whack for an industry that is struggling to keep profit margins steady.…

[source: The Economist, subscription required, click here to view article]

Guess who earned even more than oil companies?

Oil and apples - ExxonMobil uses advertisements to point the finger at bank earnings
Do you remember when you were younger and in the center of a deafening quarrel with a sibling? When caught by a parent, you would point the finger and explain how your transgression was less grievous.

But, when you have the resources of ExxonMobil and billions of dollars at your disposal, don’t just point the finger, buy full-page advertisements in papers like "The Washington Post."

That is exactly what ExxonMobil did.

Apologetically, they prepared America for record earnings by explaining "when you compare profits per dollar of revenue across a wide range of U.S. companies you see that oil earnings are not out of step with other major industries." The oil giant ended up announcing its daily sales were more than $1 billion a day. One-billion Dollars every single day! And even then, the company ran advertisements pointing the finger at the banks for earning even more.

The oil industry actually endeavored to justify its windfall profiteering by pointing the finger at .... the banking industry. Their "Business Week" and "Oil Daily"-provided chart explained that among the average industry earnings banks scored highest. This is no surprise when you take a look at their quarterly results and double-digit profits generated from credit card interchange fees. This $25 billion annual hidden tax on consumers is so vast that even the oil companies are looking up at them.

No surprise.

As gas prices doubled, so to have the banks’ earnings. Because they own the Visa and MasterCard charge card associations they too realized windfall profits; motorists more frequently used their credit cards and paid upwards of $1.50 per fill up just on interchange fees to the banks.


Thursday, October 27, 2005


Not just did register a record number of visits on Oct 26th, but it was noticed by all the major banks. It even attracted national media inquiries as well.

From conversations with typical shoppers across the country and consumer advocacy groups, many are urging the launch of this pro-commerce, pro-consumer grassroots campaign next month.

A decision will be announced shortly about using the day after Thanksgiving to draw attention to the hidden tax on consumers from banks' interchange fees.

"Even Washington lobbyist, Susan Molinari's Visa USA funded organization should applaud this campaign. After all, she recently urged consumers to use debit cards as budget advice for transacting business ('Debit Card Becoming Card of Choice for Good Reasons). If Ms. Molinari likes debit cards, surely, she will love consumers using cash," suggested Mitch Goldstone, co-editor of The Credit Card Interchange Report:

See Oct. 26th "A Day Without Credit Cards - A Day With Cash" posting.

More Trouble Abroad For MasterCard (Bloomberg)

MasterCard faces fee charges - 2005-10-28 - Shanghai Daily

EUROPEAN regulators may accuse MasterCard International Inc, the world's second-biggest credit card company, of overcharging retailers for cross-border transactions, people involved in the investigation said.

The allegations by the European Commission, the Brussels-based antitrust regulator of the European Union, follow a warning two years ago that MasterCard may be engaging in anti-competitive practices that violate EU laws.

Britain's Office of Fair Trading said in September that a fee agreement between card issuers and banks that collect payments from stores restricted competition. MasterCard said the ruling may have a "significant adverse impact" on its business. European transactions for the New York-based company rose 14 percent to US$83.2 billion in the second quarter.

"Companies say that these rulings affect their revenues because transaction costs don't go away and they need new ways to get their revenue back," said Richard Rolfe, editor of the European Card Review in England, a magazine covering the credit-card industry.

MasterCard isn't aware of any new EU accusations, said Louise Herbert, a company spokeswoman. "We're waiting to hear more from the European Commission," she said.

Jonathan Todd, a commission spokesman, said "the inquiry is ongoing." At issue in the EU probe are fees that banks in the MasterCard system charge each other to process cross-border transactions, said the people, who declined to be identified.

The so-called interchange fees are passed on to retailers and represent the merchants' largest cost in accepting MasterCard payments.

MasterCard doesn't disclose the size of the fees, which is unfair to both the retailers and potential competitors, the EU said two years ago.

Visa, the world's largest credit-card company, agreed in 2002 to cap and cut retailers' fees for cross-border transactions by 2007, settling a European antitrust probe.

[Source: Shanghai Daily; Bloomberg]

Wednesday, October 26, 2005

"A Day Without Credit Cards - A Day With Cash" (commentary:

What would happen if on Friday, November 25th, consumers across America chose cash and checks to shop?

Imagine. It is the busiest shopping day of the year, Friday, November 25th and consumers used just cash and checks to shop. is evaluating a proposal for an exploratory launch of a national campaign next month to draw attention to the bank-owned credit card associations' interchange fees. This idea was suggested by consumers and is independent from our role as lead plaintiffs in the credit card interchange litigation.

The genesis for creating an exploratory survey to determine the viability of this initiative began locally at 30 Minute Photos Etc. We noticed that more of our retail customers began paying with cash and writing checks; most are familiar with our role in the antitrust case. Several people asked if we could expand their individual protests on a larger scale. However, such action would have to come from consumer groups. Personally, we are against boycotts, but think this call to action has some merit.

If implemented, A Day Without Credit Cards - A Day With Cash" will draw extensive attention and engage additional conversation in the mounting battle against credit card interchange fees.

Widespread support from shoppers and consumer groups thoughout the nation would be necessary and the campaign would have to be implemented by consumers, not retailers.

Among the recommendation to us were that debit, ATM and check cards should also not be used on that day. Many merchants are unaware that when they swipe a debit card as a credit card transaction they are charged as if it was a credit card. While the consumer has the funds immediately withdrawn from their account, the retailers can pay upwards of 2.5%, rather than just a flat fee. On a $1,000 transaction, those debit cards can cost a merchant $25.00, rather than just .50 - .75 cents.

In advance of the single busiest shopping day of the year, the initiative would recommend consumers choose another form of payment. Consumers would be sending a blaring signal to Visa and MasterCard in protest against their collusive practices that force retailers to pay whatever rates the banks want to charge.

Ecommerce businesses would be exempt from "A Day Without Credit Cards - A Day With Cash." We do not want to impact or affect any commerce, especially online businesses. Besides they are already entirely obligated to Visa and MasterCard by effectively being forced to accept those cards. Ex: One-hundred percent of all transactions through 30 Minute Photos Etc., the national online boutique photo service is credit card based; so too are most Ecommerce businesses. Whether it is 30 Minute Photos Etc., or giants like Travelocity and, online orders usually require credit card payments.

The objective is to educate, not impair commerce.

As background, the co-editors of have launched a series of previous national grassroots initiatives, including:

o An event that brought 5,000 people to NYC on Veteran's Day - two months after "9/11" to support the airlines, commerce and "The Big Apple."

o A year later, "Fly With Courage" was created to demonstrate that flying on Sept 11, 2002 was safe and necessary to support the airline and travel industry.

o Last Summer, "Support the Games" brought business leaders to Athens to help fill the stands when few tourists wanted to risk attending the Olympics.

o In January of this year, "Operation Photo" raised used-digital cameras which were donated to families across the country through Operation HomeFront, a military family support service. Using photography, the cameras helped bridge the divide and boost morale due to the effects from Americans being deployed abroad. More background info is available on the 30 Minute Photos Etc., "In the News" website

[Ed note: 30 Minute Photos Etc. is owned by the lead plaintiff and class representative in the antitrust litigation against the credit card associations and major banks. The company's founders, Carl Berman and Mitch Goldstone are also co-editors of "The Credit Card Interchange Report:"]

For more info on how you can assist in this exploratory evaluation please contact:


Tuesday, October 25, 2005

OFT issues statement of objections on Visa agreement (Retail Bulletin, UK)

The UK's Office of Fair Trading (OFT) has issued a statement of objections against Visa and its members, which includes most major banks, regarding an agreement on its domestic multilateral interchange fee (MIF) applicable to consumer credit card, charge card and deferred debit card transactions in the UK.

The OFT is of the view that the collective agreement between Visa and its member banks on the interchange fee charged between card issuing banks and merchant acquirers, on Visa card transactions taking place in the UK, restricts competition and infringes Article 81 of the EC Treaty and the Chapter I prohibition of the Competition Act.

The OFT believes that, like the MasterCard MIF agreement, the Visa MIF agreement leads to an unduly high fee being paid to card issuing banks by merchant acquirers on every Visa transaction, and that the cost of these fees is likely to be passed on to retailers and ultimately to consumers. These parties now have the opportunity to make representations to the OFT.

[Source: Retail Bulletin, UK]

More windfall profits from credit card interchange fees

Sierra Bancorp Announces Record Results of Operations "income, which increased by 21% for the quarter and 14% year-to-date, was higher primarily because of higher credit card and check card interchange fees..."

We Pause to Honor the Courageous Legacy of Rosa Parks

Civil Rights Pioneer Rosa Parks Dies at 92 - By BREE FOWLER - Associated Press Writer

DETROIT - Rosa Parks, whose refusal to give up her bus seat to a white man sparked the modern civil rights movement, died Monday evening. She was 92.

Mrs. Parks died at her home during the evening of natural causes, with close friends by her side, said Gregory Reed, an attorney who represented her for the past 15 years.

Mrs. Parks was 42 when she committed an act of defiance in 1955 that was to change the course of American history and earn her the title "mother of the civil rights movement."

At that time, Jim Crow laws in place since the post-Civil War Reconstruction required separation of the races in buses, restaurants and public accommodations throughout the South, while legally sanctioned racial discrimination kept blacks out of many jobs and neighborhoods in the North.
The Montgomery, Ala., seamstress, an active member of the local chapter of the
National Association for the Advancement of Colored People, was riding on a city bus Dec. 1, 1955, when a white man demanded her seat.

Mrs. Parks refused, despite rules requiring blacks to yield their seats to whites. Two black Montgomery women had been arrested earlier that year on the same charge, but Mrs. Parks was jailed. She also was fined $14.

Detroit Mayor Kwame Kilpatrick said he felt a personal tie to the civil rights icon: "She stood up by sitting down. I'm only standing here because of her."

U.S. Rep. Charles Rangel (
news, bio, voting record), D-N.Y., lauded Mrs. Parks' mettle.
"I truly believe that there's a little bit of Rosa Parks in all Americans who have the courage to say enough is enough and stand up for what they believe in," Rangel said. "She did such a small thing, but it was so courageous for her as a humble person to do."

Speaking in 1992, Mrs. Parks said history too often maintains "that my feet were hurting and I didn't know why I refused to stand up when they told me. But the real reason of my not standing up was I felt that I had a right to be treated as any other passenger. We had endured that kind of treatment for too long."

Her arrest triggered a 381-day boycott of the bus system organized by a then little-known Baptist minister, the Rev. Martin Luther King Jr., who later earned the Nobel Peace Prize for his work.
"At the time I was arrested I had no idea it would turn into this," Mrs. Parks said 30 years later. "It was just a day like any other day. The only thing that made it significant was that the masses of the people joined in."

The Montgomery bus boycott, which came one year after the Supreme Court's landmark declaration that separate schools for blacks and whites were "inherently unequal," marked the start of the modern civil rights movement.

The movement culminated in the 1964 federal Civil Rights Act, which banned racial discrimination in public accommodations.

After taking her public stand for civil rights, Mrs. Parks had trouble finding work in Alabama. Amid threats and harassment, she and her husband Raymond moved to Detroit in 1957. She worked as an aide in the Detroit office of Democratic U.S. Rep. John Conyers (news, bio, voting record) from 1965 until retiring in 1988. Raymond Parks died in 1977.

Mrs. Parks became a revered figure in Detroit, where a street and middle school were named for her and a papier-mache likeness of her was featured in the city's Thanksgiving Day Parade.

Mrs. Parks said upon retiring from her job with Conyers that she wanted to devote more time to the Rosa and Raymond Parks Institute for Self Development. The institute, incorporated in 1987, is devoted to developing leadership among Detroit's young people and initiating them into the struggle for civil rights.

"Rosa Parks: My Story" was published in February 1992. In 1994 she brought out "Quiet Strength: The Faith, the Hope and the Heart of a Woman Who Changed a Nation," and in 1996 a collection of letters called "Dear Mrs. Parks: A Dialogue With Today's Youth."

She was among the civil rights leaders who addressed the Million Man March in October 1995.
In 1996, she received the Presidential Medal of Freedom, awarded to civilians making outstanding contributions to American life. In 1999, she was awarded the Congressional Gold Medal, the nation's highest civilian honor.

Mrs. Parks received dozens of other awards, ranging from induction into the Alabama Academy of Honor to an NAACP Image Award for her 1999 appearance on CBS' "Touched by an Angel."
The Rosa Parks Library and Museum opened in November 2000 in Montgomery. The museum features a 1955-era bus and a video that recreates the conversation that preceded Parks' arrest.

"Are you going to stand up?" the bus driver asked.

"No," Parks answered.

"Well, by God, I'm going to have you arrested," the driver said.

"You may do that," Parks responded.

The Parks Institute struggled financially since its inception. The charity's principal activity — the annual Pathways to Freedom bus tour taking students to the sites of key events in the civil rights movement — routinely cost more money than the institute could raise.

She was born Rosa Louise McCauley on Feb. 4, 1913, in Tuskegee, Ala. Family illness interrupted her high school education, but after she married Raymond Parks in 1932, he encouraged her and she earned a diploma in 1934. He also inspired her to become involved in the NAACP.

Looking back in 1988, Mrs. Parks said she worried that black young people took legal equality for granted.

Older blacks, she said "have tried to shield young people from what we have suffered. And in so doing, we seem to have a more complacent attitude.

"We must double and redouble our efforts to try to say to our youth, to try to give them an inspiration, an incentive and the will to study our heritage and to know what it means to be black in America today."

At a celebration in her honor that same year, she said: "I am leaving this legacy to all of you ... to bring peace, justice, equality, love and a fulfillment of what our lives should be. Without vision, the people will perish, and without courage and inspiration, dreams will die — the dream of freedom and peace."

[Source: AP]

Sunday, October 23, 2005

Plastic not fantastic: US card industry in revolt (Reuters)

Plastic not fantastic: US card industry in revolt - Sun Oct 23, 2005 2:07 PM ET - By James B. Kelleher

CHICAGO (Reuters) - Nobody seems happy with the U.S. credit-card industry these days -- not the consumers who use the cards, the retailers and merchants who accept them, or the lawmakers who oversee the industry.

The merchants accuse the industry of illegally fixing the processing fees its charges them and they are not taking it any more. A growing number have filed suit against the industry's two biggest associations, alleging violations of U.S. antitrust law.

Consumers, meanwhile, accuse the industry of larding its contracts with fine-print "gotcha clauses" that trigger rate increases and penalties -- and they're not taking it anymore either. A growing number are complaining to the Better Business Bureau, where credit-card gripes are now the third-largest source of complaints, and to representatives in Congress.

And those lawmakers are beginning to stir. A flurry of bills have been introduced this year in the
U.S. Congress to protect consumers from what critics characterize as industry abuses, including one called The Loan Shark Prevention Act.

Another, the Credit Card Accountability Responsibility Disclosure Act of 2005, sounds less threatening to the industry, but its author, Sen. Chris Dodd (D-Conn.), has called credit cards "nothing less than wallet-sized predatory loans."

"I think the credit-card industry is reaching a tipping point," said Travis Plunkett, the legislative director at the Consumer Federation of America, a Washington, D.C.-based group that has been inundated with complaints from consumers.

"People are just fed up with the approach that the large credit-card issuers have taken over the past five years. They're fed up with an increasing number of traps and tricks. They're tired of being hit with a fee every time they blink."


This month, the industry's PR problems deepened when Consumer Reports, a monthly magazine published by Consumers Union -- an independent, nonprofit product testing and information service -- blasted the industry's policies in a story headlined: "Credit Cards: They really are out to get you."

"These bad practices start with the high-rate cards and then they migrate to the cards that everyone else holds and then they become very intense in the marketplace," said Gail Hillebrand, a senior attorney with Consumers Union.

The credit-card industry is taking note. At a card industry conference in Memphis last month, Duncan MacDonald, the former general counsel at Citibank Cards who is now a consultant, sounded the tocsin, warning the industry heavyweights assembled there that they were headed into a "perfect storm."

"You've got consumers and merchants revolting," he said. "They're the two customers of this industry. That's not good."

The industry's response to this uprising has ranged from the modest to the monumental.
Citigroup Inc. the No. 3 U.S. credit-card issuer by purchase volume, recently introduced a card called Simplicity, which promises "no late fees" -- provided the card is used at least once a month.

The 1,400 banks that own MasterCard, the world's No. 2 credit-card association, decided earlier this year to sell shares to the public in a move that will reshape the landscape. Visa, the world's No. 1 credit-card association, is widely expected to follow suit.

The hope is that by opening up their ownership to members of the public, the associations will have a bullet-proof answer to claims contained in dozens of federal lawsuits filed against them that they are an illegal cartel of competitors setting prices in concert -- in violation of U.S. antitrust law.


But the credit-card associations are not rolling over. They continue to defend the fees they charge merchants, pointing out that somebody has to pay for the payment systems and finance the float that consumers enjoy when they use credit cards.

And they say that consumers who don't like the interest rates, late and over-the-limit fees that one card charges can always just take their business to another -- or simply use a debit card, a store card or even a check.

"Consumers have alternatives," said Jeffrey Green, the editor of Cards & Payments Magazine, which tracks the industry.

As the lawsuits multiply and drag on, some see opportunity through competition.

DebitMan Cards Inc., a privately held company based outside San Francisco, has created a merchant-oriented card that charges fees of just 15 cents a transaction. That is far lower than the 23 to 50 cents that the bank-run debit systems charge and well below the interchange fees that the banks charge on credit-card transactions, which often are 2 percent of the gross transaction -- plus transaction fee.

The payment processing arm of Ohio-based Fifth Third Bancorp has signed on as processor and a number of retailers that process via Fifth-Third, including CVS, Kroger, and Best Buy now accept the cards.

Getting merchants to issue the cards has proven to be tough.

"It's a chicken and egg thing," R. Scott Hatfield, its president and chief operating officer, said.
Hatfield believes the merchants who are spending cash fighting the credit-card companies in court are wasting money.

"They'd be better served if they just issued cards on a competitive network rather than paying lawyers and trying to lower interchange rates," he said."

([Source: Reuters]

Saturday, October 22, 2005

Visa in dock over card usage fee (BBC News)

Credit card firm Visa is to be the subject of an in-depth inquiry by the Office of Fair Trading (OFT) into the fees it charges to retailers.

The OFT says that interchange fees - the fee charged between banks for processing a card transaction - are too high.

The fees, it said, meant that consumers ultimately paid more for goods.
Last month, the OFT said the fees charged by Mastercard and the major banks amounted to a tax on consumers.

Unduly high

The cost of these fees is passed on to retailers and ultimately to consumers OFT statement . The OFT has been examining Visa's interchange fee since last November. The OFT has issued a so-called statement of objections regarding Visa, which has 89 million cards in the UK, as a prelude to launching a full investigation.

In the statement, the OFT said it believed the collective agreement between Visa and its member banks on the interchange fee in the UK restricted competition and infringed rules. "The Visa MIF agreement [interchange fee] leads to an unduly high fee being paid to card-issuing banks by merchant acquirers on every Visa transaction," the OFT statement said.

"The cost of these fees is passed on to retailers and ultimately to consumers," it added.
In response, Colin Grannell, managing director of Visa, said he was "disappointed" at the OFT statement. He added that they had agreed the way it calculated its interchange fee with the European Commission.

Visa now has an opportunity to defend its fee structure.

In the end, the OFT could order Visa to reduce the fee and even fine the card issuer.

In September, the OFT found that Mastercard's interchange fee had been deliberately set too high so that banks could recover some extra costs, such as those of offering standard interest-free periods.

The scale of the overcharging was highlighted by the fact that in the year 2004 alone, UK Mastercard users spent £43bn in 700 million separate transactions.

The interchange fee paid to the banks by the retailers averaged around 0.9%, or £400m.
But Mastercard has since changed its charging structure.

[Source: BBC News]

Friday, October 21, 2005

More Windfalls At The Gas Pump (Forbes) - Liz Moyer, 10.21.05, 6:00 AM ET

Oil companies aren't the only ones reaping windfalls from soaring oil prices. Banks and finance companies that specialize in credit cards are enjoying double-digit gains in the fees they make for processing card payments, largely because rising gasoline prices are forcing consumers to reach for plastic at the pump. And these same companies are also taking a bite out of gas retailers.

How so? Banks charge gas retailers a percentage of the transaction amount to help cover the costs of processing the payment and other costs. This is called the interchange fee. A year ago, when gas cost $2.03 per gallon, banks got about 5 cents per gallon in interchange fees--based on a 2.5% rate per transaction. Now, with gas at $2.72, banks are raking in closer to 7 cents per gallon. And gas tanks haven't gotten any smaller.

JPMorgan Chase (nyse: JPM - news - people ), one of the largest issuers of credit cards in the U.S., said on Wednesday that operating profits from card services rose 43% in the third quarter. It cited higher fees from merchants as one of the factors. At Bank of America (nyse: BAC - news - people ), debit card purchase volumes were up 28% in the quarter, while revenue from debit cards was up 29%.

The use of cards for gas purchases is also on the rise.

Last year, consumers charged or had debited some $177 billion for gasoline, according to the Nilson Report. Some 47% of that was charged to MasterCard or Visa. American Express (nyse: AXP - news - people ) and Discover each had barely 4% of the market. Now, with profit growth slowing in the card business, the biggest card issuers are stumbling over themselves to offer new cards with more lucrative rewards programs--all designed to get consumers to use plastic instead of cash.

Citigroup (nyse: C - news - people ) this week unveiled a new line of cards that have no annual fees and no late fees, featuring big incentives (like 5% cash back) when the cards are used at gas stations and drug stores. "The issuers are competing in a real slugfest for customers, and the rewards programs are at the center of it," said David Robertson, publisher of the Nilson Report.

Interchange fees help offset the costs of rewards programs. Of course, retailing groups are screaming mad about the ballooning sizes of the interchange fee, and some are trying to get the mammoth card associations to lower or suspend them.

Multiple lawsuits are pending in U.S. courts, brought by retailing associations and trade groups seeking to lower or eliminate the fees. Similar suits in Australia have been successful, and retailing groups in the U.K. are agitating for the same changes there.

Mitch Goldstone, an online merchant, blogger and lead plaintiff in a class-action lawsuit over such fees against MasterCard and Visa, says they are just too high. He has made it the central theme on his Web site,

According to the National Retailing Federation, card issuers made some $25 billion last year on interchange fees alone, with $17 billion of that going to banks that issue under the MasterCard and Visa logos.

Meanwhile, retailers haven't been able to raise prices to keep up. Gas stations, for example, are struggling fiercely under competition to keep prices low (as lawmakers watch them for signs of price gouging). This means the higher percentages on the fees the retailers pay to banks are chipping away at the pennies they make in profit per gallon.

"It's an unearned byproduct of the rising price of oil," contends J. Craig Shearman of the National Retail Federation.

Goldstone even attempted to get MasterCard and Visa to cut consumers (and merchants) a break after Hurricane Katrina by suspending interchange fees entirely for gas retailers. After last year's tsunami in Indonesia, the associations did suspend interchange fees on donations made with plastic to the Red Cross. But this time the associations are not budging. "Interchange fees are not reflective of gas prices," said a spokeswoman for MasterCard.

It's not likely that the gas stations will win. They could refuse to accept cards or start charging less for purchases made with cash, but consumers are so in love with plastic that those tactics probably wouldn't work.

"Banks have done such a good job at ingraining the rewards programs," said Scott Valentin, an analyst at Friedman Billings Ramsay. "Merchants don't have to take credit cards, but most merchants are afraid to do that."


Thursday, October 20, 2005


Antitrust litigation consolidated and transferred to the Honorable Judge John H. Gleeson, Eastern District of New York. Judge Gleeson is experienced with this type of litigation - click here for background.

Visa, MasterCard and major banks lose out on venue for court location. If you ever saw the film "My Cousin Vinny" and the Joe Pesci character, you will understand why they instead wanted the case heard in the Northern District of Georgia.

However, to the benefit of merchants and consumers, the cases will be consolidated and transferred to the Eastern District of New York before Judge John H. Gleeson. "This will help streamline pretrial proceedings in these actions."

Repeating: The judicial panel on the multidistrict litigation regarding payment card interchange fees and merchant discount antitrust litigation have announced a centralization and consolidation of the 14 actions.

More info, click here


Wednesday, October 19, 2005

UK Watchdog Says Visa Card Fees Anti-competitive (Reuters)

[ commentary: In a move that further strengthens our claim that the credit card cartels have illegally acted in collusion to price-fix and harm merchants and consumers, the UK initiated charges against Visa as well - See below article.

This will help lead to major changes and eventually terminate their $26 billion annual feast at the expenses of all consumers. Moms buying milk for their children and motorists purchasing gas at the pumps will ultimately be the biggest winners as the decades-old hidden tax on consumers finally ends.

With frequent headlines like MasterCard charged with ripping off consumers, we anticipate that as the lead plaintiff and class representative, our antitrust litigation against the card associations and major banks will result in a speedy resolution. Rather than taking years, we expect that the growing, intense pressures on banks will force them to quickly respond to our complaint and ultimately terminate their entire interchange fee money-train.

Remember: there is no interchange fee when writing checks and there is no interchange fee when using debit (PIN) cards in Canada, and soon, there will be no interchange fee when using credit and debit cards in the U.S. The reason: Bank of America wants to have a January close on its acquisition of MBNA and MasterCard wants to pass off the liability of this litigation on the public through a $2.5 billion public stock offering. Along with other reasons, we expect that the newest pressures from abroad in the Britain will further shake the foundation beneith their house of cards. - editors,]

Reuters - Wed Oct 19, 2005 9:22 AM ET - By Steve Slater

LONDON, Oct 19 (Reuters) - Britain's consumer watchdog said on Wednesday the fees charged by the UK members of credit card company Visa infringe competition rules and lead to unduly high costs for retailers and consumers.

The Office of Fair Trading (OFT) issued a statement of objections regarding the interchange fees -- the charge paid between two banks when a retail transaction is carried out by card -- charged by Visa members.

The statement represents the first formal objections against Visa and could pave the way for cuts to the fees earned by its members, which include most of Britain's major financial institutions. Visa has until early next year to respond.

Visa, which has 89 million cards in issue in the UK, said it was surprised by the OFT's comments, which seemed to clash with an agreement it reached three years ago with the European Commission to cut its interchange fee to 0.7 percent by the end of 2007.

Colin Grannell, managing director of Visa UK, said the company was on track to achieve that target in Europe and Britain.

"So for the OFT to say the rates are unduly high clearly is at odds with the Commission's position on how we calculate interchange," he told Reuters.

"If the OFT artificially forces the interchange rates down then you have to cover your costs elsewhere and there will be potentially unintended consequences on service levels for cardholders or retailers."

A consumer group, Which?, had complained that retailers were passing the interchange fees onto consumers.

The organization welcomed the OFT's comments but said it was doubtful shoppers would benefit even if the fees were cut.

"I would hope that the benefits would be passed on but it is doubtful. If retailers save 1 percent by not having to pay these fees will they pass the gain on?" said Mike Naylor, principal researcher at Which?.


The OFT began a preliminary probe into Visa members' fees in November. It was expected to find objections after the watchdog said last month that members of rival credit card firm MasterCard had infringed competition rules.

"The OFT believes that, like the MasterCard MIF (interchange fee) agreement, the Visa MIF agreement leads to an unduly high fee being paid to card issuing banks by merchant acquirers on every Visa transaction," the OFT said.

"The cost of these fees is passed on to retailers and ultimately to consumers."

In September the OFT said MasterCard had infringed competition law but MasterCard rejected the ruling and said it would appeal. The watchdog has been investigating MasterCard since 2000, its longest probe ever.

Visa and MasterCard members are essentially all major British financial institutions, including leading credit card issuers Barclays and Royal Bank of Scotland .

Visa said 4.6 billion transactions were handled using its cards in the UK in the second quarter of this year, representing an average of 18 transactions per month with each card.
Britain's credit card issuers have come under increased scrutiny in recent years amid uncertainty about fees charged and as consumers continue to put record amounts on their cards despite a slowdown in overall spending.

Credit card companies do not release their payment structures, but a 2000 government study found that interchange fees amounted to about 1.1 percent of the purchase price.
MasterCard said its average fee had fallen below 1 percent. (Additional reporting by Carmel Crimmins)

(source: Reuters)

Visa probe launched by England's Office of Fair Trade

LONDON (SHARECAST) - Barclaycard and other members of the Visa credit card network in the UK are facing a full-scale investigation from the OFT into claims of overcharging.

The consumer watchdog’s move follows a five-year investigation into rival credit card supplier Mastercard that concluded in September. That inquiry said MasterCard had infringed competition law and that the fees resulted in higher retail prices, though the card issuer refuted the conclusion and plans to appeal.

The OFT had been expected to turn its attention to Visa once the Mastercard review had finished. In a statement, the OFT said the collective agreement between Visa and its member banks on the interchange fee in the UK restricted competition and infringed rules. Visa has nearly 90m cards in issue in the UK.

"The OFT believes that, like the MasterCard MIF agreement, the Visa MIF agreement leads to an unduly high fee being paid to card issuing banks by merchant acquirers on every Visa transaction. "The cost of these fees is passed on to retailers and ultimately to consumers," it added.

(source: ShareCast)

Bank Earnings: Only Gas Companies are Profiteering More (Commentary,

Wachovia Corp. reported record net quarterly income today due partly to windfall profits from its credit and debit card interchange fees. In the bank's own words: "24 percent revenue growth ... from strong increase in debit card interchange fees."

Bank of America reported more than a 20 percent increase from $1.2 billion dollars in the 3rd qtr of '04 to $1.5 billion this year. In just three months the bank's income from card income rose with lightening-fast speed. Year-to-date, BAC earned $4.2 billion, vs. $3.2 billion during the first 9 months last year - more than a 25% increase!

JP Morgan Chase reported on Wedneday that its noninterest revenue of $1.0 billion was up $156 million, or 18%. This increase was driven by higher charge volume resulting in increased interchange income.

While months ago, we didn't need forensic accounting experts to identify the windfall earnings from credit card interchange fees -- it was a line item on their statements - today we tried identifying Citigroup's results, but were unsuccessful after hours of reviewing their posted SEC filings. Seems that this profit center is becoming more sensitive and necessary to conceal due to the billions in potential liability from the credit card antitrust litigation.

In just a few weeks, as the new year begins, Bank of America's "integration" of MBNA will be completed. This means even less credit card competition and more opportunity to continue the bank's (alleged) collusive, price-fixing ways to control a $26 billion dollar annual trough of excessive profits. Where is Susan Molinari's group, (ACEC) Americans for Consumer Education and Competition when we need them? Oh yes, the ACEC gets "financial support from VISA USA" so we guess Americans will not be having them champion on behalf of retailers and consumers. The MBNA acquisition would have been the ideal opportunity for former congresswoman Molinari to engage her group to address the lessening competition within the banking / credit card industry.

[Click here to view entire press release].

Tuesday, October 18, 2005

Picture of Frustration (STORES Magazine)

Mitch Goldstone is fighting mad.

The operator of 30 Minute Photos Etc., an online photography business, Goldstone learned earlier this year that his cost of accepting MasterCard and Visa cards was going up yet again. With 100 percent of his sales originating on the Internet, Goldstone already pays a premium for accepting bank cards.

And, because 30 Minute Photos Etc. never takes possession of a customer’s bank card, there’s no way of discerning whether the card being tendered is a credit card or a less-costly check card. As a result, all of 30 Minute Photos Etc.’s transactions are processed as card-not-present credit card payments.

When Goldstone learned earlier this year that Visa and MasterCard were raising interchange rates, and that the largest increases would apply to rewards cards, his first move was to ask that the price hikes be rescinded. He sent letters to Visa and MasterCard, but neither replied.

So Goldstone started looking for an attorney. The attorney he hired, K. Craig Wildfang, has a keen familiarity with the bank card business. While serving at the U.S. Department of Justice in the 1990s, he supervised an investigation that led to a Federal court decision stripping Visa and MasterCard rules of provisions barring banks from issuing non-bank cards, such as American Express and Discover.

“I wasn’t planning to sue. I’m not a litigious person,” Goldstone says. “I just wanted Visa and MasterCard to rescind the new interchange rates.

”Wildfang expects the lawsuit will be combined with several other lawsuits and granted status as a class-action suit representing the interests of all U.S. retailers.

Goldstone expects the case will have even greater significance than the so-called Wal-Mart suit, which resulted in an out-of-court settlement last year valued at about $3 billion. “This is the most significant antitrust suit since the breakup of AT&T in the 1980s,” he says.

[source: STORES Magazine, National Retail Referation]

Thursday, October 13, 2005

How Banks Spin Interchange To Make "News" (WayTooHigh Commentary)

During the past few months, "independent research firms" have published proclamations warning against the credit card interchange price-fixing litigation. Because this litigation is the largest antitrust case since the AT&T breakup in the early 1980's be prepared for an onslaught of special interest news advisories and white paper reports.

As a lead plaintiff in the multi-billion dollar antitrust case against Visa, MasterCard and member banks which own the two card associations, 30 Minute Photos Etc. and our Credit Card Interchange Blog: have been closely following the rhetoric presented by these organizations which sell market research reports to its subscribers.

Did you know that these research firm’s are designed in part to advocate on behalf of their clients? They help facilitate businesses with a pay-for-expertise service. When a company yearns to enhance its credibility, research firms can provide favorable editorial prospective to create surveys and authoritative-looking documents on any issue. When you pay, you can help shape the survey questions to highlight the features you aim to promote.

Recently, two leading research firms produced reports which were proactive to the credit card associations.

An August IBISWorld funded “research report” provided trends, statistics and analysis on merchant fees and credit card issuing in the U.S. The report indicated that the “major players” referenced within the report are Citigroup, Bank One and MBNA; all are co-defendants in the interchange litigation. And, the company’s partial listing of “current members” include several of the co-defendant banks named in the interchange, including Bank of America and Wachovia Bank.
The question is whether the materials provided by these research firms are impartial? Is there a proclivity to vent a neutralized response to support the issues favorable to those buying the reports? “News” issued through a PRNewswire or Businesswire-type service are really PR advertisements because the editorial is provided by the issuing company.

What is the accuracy of these strategic intelligence reports and why do several news organizations use the reports as a legitimate source? IBISWorld illustrated on its website that it is “fast becoming the world’s leading strategic business information provider offering a wealth of uniquely comprehensive and powerful information on a number of economies around the globe.”

Whether it is a research firm or association, like the one which former U.S. Congressional member, Susan Molinari heads; her organization’s views help promote their clients. But, these arguments are diminished when you read the fine print. Susan Molinari, national chairperson of Americans for Consumer Education and Competition (ACEC), is partly funded by Visa USA. How do we know this? Just read the last paragraph of her releases. As president of Ketchum Public Affairs, Molinari is chairperson and CEO of the Washington Group, which is owned by Ketchum PR, a global leader in public relations; their former client was Visa USA.

Just follow the money and what reads innocently enough is really a well financed machine to gouge out a public relations victory. ACEC issued several news releases to promote debit cards and support the interchange fees, even though it ends up costing merchants more money and is a hidden tax on consumers. With debit cards, banks get access to the funds instantly, yet retailers pay a percent of sale, rather than a flat fee when the cards are transacted as credit cards, which is easy to do. The card marketers are designing branded debit cards which are nearly impossible to differentiate from traditional credit cards. If Molinari’s organization really cared about restraining of competition, she would address the banking industry consolidation which further reduces fair competition. Fewer banks and fewer credit card companies means less competition and more incentives to control this market.

Here is how these studies work. Molinari referenced Datamonitor’s report within her news release which gets widely picked up and is available on the Internet. She uses quotes from the study as if the comments are newsworthy and from a reliable source. Trade associations are notorious for publishing these types of reports without questioning who funded the study. In the case of Datamonitor, a strategic market analysis company they promote that their reports “supports your product positions with independent white papers.” This, in our opinion, means you pay, they type to “develop customer orientated marketing campaigns and sales propositions.”

Click here to understand how Datamonitor works. Note the bias within its Interchange in Australia report. Who paid to author this report?

Conversely, is operated by 30 Minute Photos Etc., which is a lead plaintiff in the interchange litigation representing a class of merchants battling the ever-increasing horizontal pricing agreement between the banks, Visa and MasterCard which markets their credit cards.

Just like how the interchange fees represent a burdensome hidden tax on consumers, the PR machines behind the banks and credit card associations are equally hidden behind what appears to be polished-looking news reporters. So, during the coming months, look out for several pay-for-play "reports."

[source:, edited by Carl Berman and Mitch Goldstone]

Facing a Multi-Billion Dollar Antitrust Litigation, MasterCard Plans IPO (commentary

MasterCard Inc., the credit card giant owned by 1,400 financial instructions stands accused of significant antitrust violations for its anticompetitive interchange fees charged to merchants.

So, what do they do

MasterCard's financial Imagineers abandon logic and announce plans to raise nearly $2.5 billion through an initial public offering of stock. This might give pause to the investment community, but as lead plaintiff in the credit card interchange antitrust litigation, we are winking. Actually, we are wiping our eyes in disbelief. Faced with a potential multi-billion dollar liability and a direct assault on much of its revenues, the charge card marketing association's owners are banking that the public won't notice.

By selling out to public investors would MasterCard (and Visa if it also files for an IPO) have a more questionable motive? The antitrust litigation claims that the card associations are in collusion with its owners -- the member banks on its board which unilaterally set the interchange fees. While a new board representation might claim to finally not be conspiring to fix prices, the fact is that the damage has already been done. For more than a decade and hundreds of billions of dollars, the credit card associations have earned huge profits at the expense of merchants and consumers.

How can the closely held credit card cooperative explain that the use of proceeds will help fund and expand its global reach, yet not address the interchange litigation?

And, the banks which own the Purchase, NY company are applauding this planned stock offering. Of course they are. Are the cheers due to identifying an exit strategy to limit their liability, or are they granting others to take ownership of a threatened business model? Either way, the financial institutions get rich by attempting to cash out part of their significant investment in MasterCard, which along with Visa and member banks are all under public scrutiny for being accused of illegal price-fixing.

The question is whether Wall Street and Goldman Sachs Group, which is managing the offering, have come to terms with this potential multi-billion dollar legal liability?

Perhaps not.

Financial Times reporter, David Wrighton explained that MasterCard wants to become an "independent public company in an attempt to distance its bank owners from regulatory and legal threats."

Still, MasterCard's
website has not issued an update to its merchant lawsuit page since 2003! But, as of today, Sept 19, 2005, the company does advise that "as events develop, MasterCard will add updates and statements about the issues raised by the Merchant lawsuit."

We wonder what they are waiting for?


Tuesday, October 11, 2005

"MasterCard Facing Extraordinary Pressure" (Green Sheet)

With increasing concern over cardholder data security, lawsuits filed by merchants over interchange, and competition among card brands, MasterCard Inc. is facing extraordinary pressure as a card Association. At the end of August, MasterCard announced some significant changes for the company that might assuage some of the heat.

MasterCard plans to restructure company ownership through an initial public offering of common stock; it also plans to restructure corporate governance.

The word on the street is that MasterCard hopes the IPO will not only raise capital, but also increase transparency in its operations (thereby buffering itself from public criticism) and help cushion the blow should any of the 20 or so lawsuits pending against it result in financial liabilities.
"We believe that the proposed changes will give us a more stable base on which to implement our customer-focused strategy and bring value to our customers' businesses," MasterCard wrote in an Aug. 31 letter to shareholders.
"The company is building a war chest for investments and expasion," said John Gould, Partner at research firm PrepaidAdvisory LLC. "Their goal is a fast increase in revenue."

In announcing the IPO, MasterCard said it would put a 49% stake in the organization on the block in the form of Class A common stock; these stockholders, combined, will share 83% of shareholder voting rights.

The banks that now make up MasterCard's Board of Directors will retain a 41% share in the new company, represented by nonvoting Class B common stock with unspecified voting privileges. A newly formed charitable foundation will own the remaining 10% of MasterCard. MasterCard said it will use monies from the IPO to purchase a portion of the collective ownership now held by banks. The organization's new governance structure includes eight independent Directors, three bank Directors, a nonvoting Director from the current Board and the Chief Executive Officer.

Transformation in Progress

MasterCard has been a privately held corporation for the last several years; more than 1,400 member banks hold shares of the organization. In its letter to shareholders, MasterCard explained it would "retain $650 million of the IPO proceeds to fund a capital increase."

For the second quarter 2005, MasterCard reported $772 million in revenue, a 19% increase over the same period last year.

Gould said "MasterCard is trying to transform [itself] into a global payments company instead of just a credit card," and that the company is deemphasizing its reliance on credit and debit cards to generate revenues from other elements of the value chain, such as processing services.
"If I were MasterCard, I would become an acquirer," he said.

Litigation Looming

MasterCard's new governance structure and ownership diversity should also lessen the impact of pending litigation. At least 20 different lawsuits against MasterCard (filed by merchants, rival card brands and the like) are now pending; adding Visa and individual member banks brings the tally to more than two dozen cases.

Many of the lawsuits filed by merchants take issue with interchange. In 2003, MasterCard agreed to an out-of-court settlement of a lawsuit brought by a large class of merchants (led by Wal-Mart Stores Inc.) that put it on the hook for a little more than $1 billion in restitution payments to merchants. Many believe that settlement opened the courts to the current pending lawsuits over interchange.

The big gripe merchants have with interchange is that a group of independently operated banks set its price structure, and thus would seem to be tantamount to price fixing and in violation of federal antitrust law. "We believe a majority independent Board, and broader diversity in our share ownership, will address perceived conflicts of interest," MasterCard wrote in its letter to shareholders.

"MasterCard is hoping now to be viewed as not just a consortium of banks fixing prices," said Dan Schatt, a Senior Analyst at banking and securities research firm Celent LLC. Nonbank entities will bring other interests into the decision-making process, he said.

Nonbank public owners conceivably would have the same access to the network as the banks, which could dramatically change the dynamics of competition. "Nonbank entities on the Board could change Association rules pertaining to who is allowed to issue and acquire credit," Schatt said. "Outside institutions not normally thought of as payment providers could now enter this [market]."

In 2002, MasterCard converted from a not-for-profit association to a for-profit, privately held incorporated company with member banks as shareholders.

This designation allowed it the "authority to issue shares of common stock" as a publicly traded company contingent upon approval by the Securities Exchange Commission (SEC) under federal securities law. It also established MasterCard as a pass-through entity, in which all monies over and above operating expenses pass through to the member, or owner, banks.

Discussions about a publicly traded MasterCard have occurred, on and off, for about 10 years.
"Based on [the] actions in 2002, this proposal [for the IPO] is not a surprise," said Attorney Adam Atlas. "MasterCard is responsible to their members for two things. The first is to maintain the network [in which] transactions are processed. The second is to support the brand." The latter includes regulation, marketing and everything in between.

The real industry shake-up would come in the form of the institutional investors. Schatt offered many investor possibilities including Wal-Mart, Google or a major telecom provider such as Cingular Wireless. "The structure will move away from bank-only members," he said. "Other stakeholders will fit the table."

Currently, only financial institutions may own a stake in the card Associations; therefore, they are the only entities allowed to issue bankcards.

However, if Wal-Mart, for example, purchased a substantial share of MasterCard, would Wal-Mart
gain card-issuing privileges?

For ISOs and sales agents wondering how the MasterCard reorganization will affect them, if anything, it might make their lives a little easier, Atlas said. "Not much will change [concerning] the ISO-bank relationship; [however] it may be easier for ISOs to deal with Association rules and possible violations. As a publicly traded company, [MasterCard] will be subject to SEC regulators who have more duty to the public than financial institutions," he said.

While the SEC might not go as far as requiring mandatory disclosure of all Association rules, it "may persuade MasterCard to be fairer in the implementation of the rules," Atlas said.

If MasterCard goes public, will Visa follow? Some say Visa is too big, and with deeper pockets, it simply won't follow MasterCard to the IPO table. Gould doesn't agree. "The pressure will be on Visa to follow suit. [It] will transform itself in the not too distant future," he said.

MasterCard's SEC filings are now being reviewed in Washington. MasterCard expects to complete the entire corporate transformation process by the first quarter 2006. MasterCard is in a quiet period and not able to comment for this story.

(source: Green Sheet)

Saturday, October 08, 2005

A Big Fight Even for Activist Mitch Goldstone (Marshall Magazine)

Mitch Goldstone Leads A Rebellion, This Time Against Credit Card Fees

By Robert Barnett - University of Southern California "Marshall Magazine"

It pays to read your mail, as Mitchell Goldstone knows and Visa and MasterCard are finding out.

Goldstone, a 1985 graduate of USC Marshall School of Business, and his partner, Carl Berman, are the co-founders of 30 Minute Photos Etc. and its online sibling, which, as the names suggest, develop photographs from film and digitized files, respectively.

Goldstone has made lots of news over the years, but nothing like this summer when his company became the lead plaintiff in a class action antitrust suit against Visa, MasterCard and major banks. The story made the pages of the Wall Street Journal, Time magazine and the New York Times.
Filed in federal court in Connecticut in June 2005 with four other small and midsize businesses, the suit accuses the credit card companies and the banks that issue their cards of illegally fixing the interchange fees that merchants pay for credit card transactions. The credit card companies have defended their interchange fees, with MasterCard’s general counsel calling them “beneficial, efficient and pro-competitive” in a statement the giant credit card company made during a recent Federal Reserve hearing.

Controversy is nothing to new to Goldstone. He’s drawn to social and economic causes the way some people have hobbies, and thinks nothing of spending hours and time and money--and overlaying all that with entrepreneurial inventiveness--on an array of projects. In addition to the class action suit, he organized Operation Photo this year to collect digital cameras for families of soldiers deployed overseas. He promoted tsunami relief for the Red Cross on the company website. He ran for city council in Irvine, CA.

But the lawsuit against the giant credit card companies represents the biggest, most formidable opponent that Goldstone has ever faced. If he and the other plaintiffs win, it could cost the credit card companies billions of dollars.

As with many of Goldstone’s past crusades, this one started almost by accident. In February, Goldstone and Berman received a notice in the mail that their interchange fees were being raised. “I usually throw them away,” Goldstone explained, ”but Carl brought it to my attention. When we started the business in 1990, there were a handful of interchange fees. Now there are nearly 100 different rates. And they’ve all been going up steadily. For example, the fee for debit cards has gone up 300% since 1999.”

Goldstone wrote to the senior management at Visa and MasterCard, asking them to rescind the increase. “Always start at the top,” Goldstone stresses. “It’s one of the greatest lessons I learned at Marshall.”

No answer. He followed up with a phone call to the two companies. Still no response. And that got the ball rolling.

Today, Goldstone and Berman write and edit the blog, “,” posting articles and editorials on the interchange fees and arguing that the fees are a hidden tax on consumers since they become part of the cost of all goods and services purchased. Their retail rebellion appears to be spreading. Kroger and six other national retailers filed their own suit against Visa U.S.A., and charged it with anticompetitive practices.

Creating a national groundswell for a cause he believes in is nothing new to Goldstone. In fact, he enjoys it. “It makes it fun,” Goldstone insists, “knowing we’re doing something that is going to help somebody.” In a sense, he sees it as part of his job. “That’s what being an entrepreneur is all about,” as Goldstone sees it. “It’s not just about making money. It’s about doing something that’s good because that’s the ultimate scorecard.”

Organizing Operation Photo is a perfect example of how social and economic issues just seem to find Goldstone – and how he uses his entrepreneurial skills to identify and promote a solution.

“I got a phone call at 7:00 in the morning right after Christmas of last year from Jennifer Petersen, a former 30 Minute Photos Etc. employee who had left to become a full-time mom,” recalls Goldstone. “She’d had a dream the night before. What if her husband was serving in the military and he wasn’t able to see their daughter? Was there any way we could get people to donate cameras to give to military families? By 8:00, the business plan was already cemented and finalized.”

Within days, they had Operation Homefront onboard to coordinate distribution, secured pledges from Kodak and other digital camera manufacturers for hundreds of new cameras, set up a “Operation Photo” website with a link from the 30 Minute Photos Etc. homepage, the press had jumped on the story, and the first cameras were already flooding in.

By the time Operation Photo wrapped up on July 4, it had collected over $150,000 worth of cameras and distributed them to grateful and appreciative families in and around military bases all over the country. In fact, many of the photos of new babies and birthday parties now being shared overseas are being developed at 30 Minute Photos Etc., thanks to its military family discount.
Goldstone always wanted to be an entrepreneur. A New Yorker by birth, he applied to USC specifically so he could enroll in what is now USC Marshall’s Lloyd Greif Center for Entrepreneurial Studies.

Goldstone and Berman started 30 Minute Photos Etc. in 1990 on the premise that family photos were among our most treasured possessions. They separated themselves from the one-hour and overnight photo competition by beating them in turn-around time, delivering a higher quality photo, staying ahead with new technology, and building a client base that included Hollywood celebrities and California Governor Arnold Schwarzenegger.

In the late 1990s, 30 Minute Photos Etc. was blindsided by the digital revolution in photography. Suddenly customers weren’t bringing in rolls of film. They were printing them off their home computers. Business took a nosedive. Goldstone transformed the company into an online boutique photo service, creating a website for customers to format and edit their digital images, and with the click of their mouse, have high quality prints processed and shipped immediately to wherever they lived in the United States. He even put a 24-hour live support capability right on the website.

Still it was a struggle to rebuild the business. In 1997, Goldstone bought some local cable spots for the MTV Video Music Awards, only to discover that the show would be featuring rap singer Eminem performing live. Offended by the rapper’s lyrics, Goldstone bought up all the local commercial time for the awards program so that organizations including the Family Violence Prevention Fund, the Museum of Tolerance, and the Human Rights Campaign Fund could ran public service announcements educating viewers on violence against women, bigotry, and gay rights.

“That was extremely expensive,” Goldstone recalls. “This was our whole campaign to get younger adults excited about our business and to use it. Instead we ran those spots because we believed it was the right thing to do. As it turned out, we also got a lot of media coverage for the educational campaign and ourselves,” he continues.

So what’s next for Mitch Goldstone? Wait and see. Visa and MasterCard may regret not answering their mail.

[Robert Barnett, a freelance writer in Los Angeles, is a contributing editor ofthe University of Southern California's Marshall Magazine].

Thursday, October 06, 2005

Bank of America Tells Customers to "Keep the Change" (

Higher Debit Charges to Merchants May Offset Savings - By Martin H. Bosworth - ConsumerAffairs.Com

October 6, 2005 At a time when the rate of personal money saving has reached record lows, how does a bank convince its customers to put money aside? In Bank of America's case, it tells them to "keep the change."

The Charlotte, NC-based financial giant's new "Keep the Change" program enables Bank of America's debit card holders to automatically deduct a small portion of a purchase into a linked savings account.

Under the terms of the program, if a shopper pays $3.25 for an item, the total cost of the item is rounded up to the nearest whole dollar -- $4.00 in this case -— and the 75-cent difference is automatically transferred to their savings account at the end of the day.

Bank of America said it will match 100 percent of each transfer for the first three months, and will contribute five percent a year thereafter.

The new system is being touted as a way for customers to save money in a simple fashion. Bank of America executive Diane Morais calls it "an electronic change jar. People can now turn those everyday purchases for groceries, gas and meals into a simple way to save."

It also encourages customers to use their debit card.

Banks earn a fee for every use of a debit or credit card in a transaction. These fees, called "point of sale fees" (POS) range from 25 cents to $2 per transaction. The cost of processing the transaction is borne by the retailer, who may in turn charge the customer more for goods they purchase.

Mitch Goldstone, owner of online photo store 30 Minute Photos Etc. and an advocate of lower fees for card transactions, calls the new program "an underhanded scheme." "This is going to lead to higher charges and more costs that will be on the backs of consumers and merchants," he said.

Goldstone said that a substantial number of debit card transactions, no matter their size, are processed as credit card transactions, which have even higher fees and end up costing consumers more in the long run.

Goldstone is one of several plaintiffs in a series of lawsuits against Visa, MasterCard, and several major banks, including Bank of America, that are out to reduce or remove the "interchange fee" from credit card transactions.

Ed Mierzwinski, consumer advocate and program director for the U.S. Public Interest Research Group (PIRG), expressed similar sentiments about the new program.

"The savings are diminished compared to how much more the bank will make in these transactions. They are trying to increase the use of debit cards to increase their profits," Mierzwinski said.


Wednesday, October 05, 2005

Taking On Credit Card Fees, With Allies (NY Times)

New York Times, Oct 6 - By ELLEN ROSEN

Michael Schumann was frustrated with escalating credit card costs at his furniture stores and, worse yet, fed up by the financial losses he was forced to absorb when customers returned purchases.

"The percentage we have to pay to credit card companies has been climbing over the past few years," said Mr. Schumann, co-owner of Traditions Classic Home Furnishings, which has stores in Minnesota and Naples, Fla. "If you buy a sofa, I may pay $20 to $40 in fees, because it's typically 2 percent. But if the customer returns the sofa, we don't get the fees back."

As more people used credit cards instead of checks or cash to earn mileage points or qualify for rebates, his displeasure grew. He always went along, though, until another grab at his cash registers pushed him over the top. "The icing on the cake was when I got a letter this spring saying that Visa and MasterCard were creating new categories for rewards and would charge merchants a premium for people using cards like that," he said.

It was at that point that Mr. Schumann, a former law student, decided to dust off his research skills and check to see if he had recourse. His investigation led him to a Minneapolis law firm - Robins, Kaplan, Miller & Ciresi - and ultimately loosed a deluge of antitrust suits nationwide over the last four months by plaintiffs including the supermarket giant Kroger and the National Association of Convenience Stores.

In addition, Publix Super Markets filed a similar antitrust suit on Tuesday against the two credit card companies. A panel of federal judges heard arguments last week to determine whether to consolidate the cases - now totaling more than 30 - before one federal judge.

At issue is the collaboration of the two biggest credit card companies, Visa USA and MasterCard International, in setting the so-called interchange fee charged to merchants by the banks processing a transaction.
The plaintiffs contend that setting the interchange fees violates federal antitrust law, while the defendants - the credit card companies as well as several large banks in some of the cases - disagree. Not only are the fees legal, the credit card companies maintain, they make up only a portion of the total cost that merchants pay for processing credit cards. Additionally, said Eileen Simon, MasterCard's associate general counsel, the credit card companies lack monopoly power in the market "because other types of payment - such as cash, checks and other types of payment cards - are available." (Spokesmen for Bank of America and J. P. Morgan Chase, two of the banks named in suits filed in September, declined to comment.)

These complaints are shaping up as the most significant challenge to the credit card industry since Visa and MasterCard agreed in 2003 to a $3 billion settlement of a class-action lawsuit spearheaded by Wal-Mart and Sears that accused them of forcing merchants to accept debit cards.

Although Mr. Schumann said he thought he had a good case, he also realized he would not stand a chance of prevailing against the deep pockets of the industry giants unless he found a large law firm willing to take the case on a contingency basis. One of the lawyers he contacted was K. Craig Wildfang, a partner in the Robins Kaplan Minneapolis office who had represented plaintiffs in other credit card litigation.

Mr. Wildfang said he was surprised to find a potential plaintiff who understood the intricacies of antitrust law. "He was so knowledgeable and obviously a bright guy, who had done research on interchange fees and how they had gone up," he said of Mr. Schumann.

It was an easy sell, Mr. Wildfang says, because he had gained expertise on credit card fees by representing the Best Buy Company and Darden Restaurants in cases related to the debit card litigation two years ago. (Best Buy's case has been settled; Darden's lawsuit against Visa is pending, Mr. Wildfang said.)

Other business owners expressed interest in signing on, including Mitch Goldstone, whom Mr. Wildfang describes as "sort of a crusader" against high credit card fees. Mr. Goldstone, the chief executive and co-owner of 30 Minute Photos Etc., an online photo service based in Irvine, Calif., said his company joined on as a plaintiff in part because, as an Internet merchant, "I'm beholden to MasterCard and Visa to complete transactions."

Many of the cases filed - including those involving lawyers other than those from Robins Kaplan - hope to obtain class-action certification.

Mr. Schumann, who says he pays between $50,000 and $75,000 annually in credit card fees, is realistic about what class-action status may mean for his individual claim. "Because it's a class action, the amount we could recover is actually quite small," he said. "But I'm in this for different reasons - to save money and because I'm fed up."

While the case has attracted the attention of many businesses, some hard slogging lies ahead for plaintiffs. A federal court dismissed a similar case in July; Mr. Wildfang said that case had procedural flaws that the current one does not.

Mr. Schumann remains unfazed by the entrance of bigger-named plaintiffs into the cases, even though their goals may differ from his and could slow the litigation.

"A lot of people have different interests and views, but the fact of the matter, if there will be any settlement or if the court solicits input into appropriate settlement, people involved in the lawsuits will be at the table, and I'll be one of them - I'll have a voice," he said. "If I hadn't initiated the suit, I'd just be a recipient of one of those mass mailings" after a settlement occurs.

[source: New York Times, Oct 6]