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]