Commentary: "Bringing Together Retailers and Consumers"

Lead Plaintiff Commentary: Have you ever wondered what it is like to be involved in the most economically significant antitrust case since the AT&T litigation in the early 1980's? Since the complaint was filed on June 22nd and as lead plaintiff and initiator of a multibillion dollar, antitrust class action lawsuit, we anticipated an arsenal of explanations by the defendants. But, we didn't envision an immediate cyclone of erroneous misinformation.

The polished legal and PR teams of Visa, MasterCard, and the large banks are spinning why they can charge millions of merchants with an interchange fee as high as they want. Interchange fees are the fees charged to merchants by Visa and MasterCard banks for processing credit card transactions. For comparison, think of your checking account. Banks give free checking and a host of other perks for your business. While check clearing and handling fees are substantial, the technology behind POS credit card merchant interchange transactions explains why banks reap more than $20 billion dollars each year from these fees. Why? Because they can.

Most consumers have never heard of such fees, yet these fees average almost 2 percent of every purchase made by consumers with credit cards. It represent a hidden and puzzling tax on such purchases. With nearly one hundred separate fees, we cannot even keep track of what the costs are. The WSJ's April 12th front-page "Marketplace" feature profile referenced our company and just one of these fee increases.

Currently, there is no market force to restrain the repeated increases in such fees in recent years. Now that merchants are fighting back, Visa, MasterCard and the banks are trying to explain why this hidden tax on consumers is justified. Yet, with todayÂ’s technological advances and efficiencies, and when the cost of other types of network services such as telephone, internet services and others are declining, credit card interchange network fees are soaring. Really soaring; debit card fees are up nearly 300% since 1999.

When the price of a latte at Starbucks rises, consumers can choose another source to get their coffee, but merchants of every size, from Wal-Mart to 30 Minute Photos Etc. are trapped. There are simply no alternatives when it comes to interchange fees.

At 30minphotos.com, 100% of our company's online photo orders require a credit card to complete the transaction. This parallels most e-commerce businesses which simply can't operate without electronic payment.

The member banks of Visa and MasterCard credit card associations, by horizontal agreement, collectively set the interchange fees at supra-competitive rates. When you understand that credit card interchange fees are lower in almost every industrialized nation other than in the United States, it becomes transparent how the named defendants are violating the antitrust laws and overcharging by billions of dollars each year.

* Did you know that if a merchant accepts your debit or check card without recognizing that it is different from a credit card, their fees are higher? It is not that sales clerks are not alert to identify what brand card is tendered, but rather, they need to be a "Where's Waldo-type" encryption expert because the cards now conceal the word "Debit" in the hologram and elsewhere.

* Did you know that if the magnetic strip on your card is worn and cannot be read by the credit card terminal, it has to be manually keyed in, and, costs more?

* Did you know that when you use your affinity, frequent flyer card it costs the merchant more and they too are being taken on a ride?

* Did you know that people who cannot afford a credit card pay the same amount for a gallon of milk as someone using a Visa card, and thus are subsidizing every credit card transaction?

* Did you know that there are no interchange fees for check clearing?

Because of billions of dollars in annual profits from these fees - fixed by the banks elected to the Visa and MasterCard Boards of Directors, get ready for an avalanche of polished PR and marketing experts to explain why their price fixing is not illegal. In representing millions of merchants and protecting consumers, our using today's Internet technology is balancing the tone of discussion. For daily updates until we remedy these anti-competitive practices, restore a competitive balance and end Visa and MasterCard's market power visit: The Credit Card Interchange Blog - WayTooHigh.com

Mitch Goldstone and Carl Berman
co-editors - WayTooHigh.com

1/2 billion dollars in just 4 months: Just how profitable is credit card income to banks? Let them tell you in their own words...

Bank Reports 23% increase to its income as a result of bankcard interchange revenues

As the banks report their quarterly results, you can follow the profitability from their bankcard interchange income to identify how profitable this segment is. For instance, on Friday, July 22nd, First Financial Bancorp of Hamilton, Ohio reported that its "Bankcard interchange income increased $297,000 or 23.37 percent from the same quarter in 2004."

Another example is from the May 5th, JP Morgan Chase & Co quarterly results, where they reported: "Card Services revenue benefited from higher loan balances, which resulted in higher net interest income. Additionally, higher customer charge volume generated increased interchange income. Partially offsetting these revenue improvements were volume-driven increases in payments to partners and higher reward payments. The provision for credit losses benefited from lower net charge-offs reflecting lower bankruptcies and delinquencies, partially offset by additions to the allowance for loan losses related to growth in on-balance sheet loans. Expenses benefited from lower compensation and processing costs, which were partially offset by increased marketing spend (sic)."

Then, a day later, on May 6th, Bank of America reported a staggering, nearly one-half billion dollar result ... in just four months! The bank's quarterly filing reported: "Card Income increased $494 million due to increased fees and interchange income, including the $242 million impact from the addition of the FleetBoston card portfolio."

(Source: WayTooHigh.com)

Retailers Sue Visa, Seek Lower Credit Card Interchange Fees (Gartner Research)

On 15 July 2005, a group of seven large U.S. retailers sued Visa USA over a component of card acceptance fees known as interchange rates. The suit alleges that Visa engaged in price fixing and adopted rules that prevent merchants from negotiating lower rates. A similar class action lawsuit on behalf of smaller retailers was filed recently against Visa USA and MasterCard International.

(Click here to view article - source: Gartner Research)

More Retailers File Suit (convenience Store / Petroleum)

Issue Date: CSP Daily News, July 18, 2005 More Retailers File Suit. Kroger, others sue Visa over interchange fees, restricting competition

CINCINNATI -- The Kroger Co. said it has filed a federal lawsuit against Visa USA Inc. and Visa International Service Association alleging that the credit card company has engaged in price fixing and restricting competition related to credit card transaction fees.

Joining Kroger as plaintiffs in the lawsuit, filed late last week in District Court for the Southern District of New York, are Ahold USA Inc.; Albertson’s Inc.; Eckerd Corp.; Maxi Drug Inc.; Safeway Inc.; and Walgreen Co.

The lawsuit alleges that Visa has unlawfully set the interchange fees that are charged to Kroger and other merchants each time a customer makes a purchase with a Visa credit card. The suit also charges Visa with creating and imposing rules and restrictions on merchants that preclude Kroger from being able to negotiate lower fees.

Interchange fees—the monies paid by retail merchants to the card association (Visa and its member banks) for processing and receiving payment for a transaction associated with a general-purpose payment card—are set by Visa and its member banks and enforced by member banks through their contracts with merchants.

Rapidly rising interchange fees are a serious problem, costing retailers and consumers an estimated $20 billion or more each year. Kroger this year expects to pay credit and debit interchange fees of approximately $350 million, up more than 215% from five years ago. During that period, Visa has raised Kroger’s interchange rate 11 times. Interchange fees reportedly cost the average U.S. household more than $230 a year.

At the same time, consumers are increasingly reliant on credit and debit cards. In 2003, for the first time ever, electronic payments comprised more than 50% of Kroger’s sales. Today, more than 60% of Kroger’s overall transactions are made via credit or debit cards.

“The collective setting of interchange fees by Visa and its member banks constitutes horizontal price-fixing that leads to higher retail prices for our customers,” said Paul Heldman, Kroger senior vice president and general counsel. “This hidden cost must be borne by all Kroger customers, whether they pay for their groceries with cash, by check or by debit or credit card. 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. Instead, Visa is using its extraordinary market power to profit at our customers’ expense.”

The complaint seeks injunctive relief to stop the anticompetitive practices plus unspecified damages.

A copy of the lawsuit is available at www.kroger.com.

In late June, Plaintiff CHS Inc., Saint Paul, the parent of CHS Energy, which operates the Cenex chain of gas stations and convenience stores, filed an antitrust class action lawsuit in the U.S. District Court for the District of Connecticut against Visa, MasterCard, Bank of America, Citibank, Bank One, Chase Manhattan Bank, JPMorgan Chase, Fleet Bank, Capital One and other major banks on behalf of merchants alleging collusive practices of their setting, by horizontal agreement, credit card interchange fees at supra-competitive levels. The Complaint seeks injunctive relief to stop the alleged anticompetitive practices plus damages.

It was joined in the suit by Photos Etc. Corp., dba 30 Minute Photos Etc., Irvine, Calif.; Traditions Classic Home Furnishings, Saint Paul; A Dash of Salt LLC, Bridgeport, Conn.; and KSARRA LLC, Newtown, Conn. At issue are the alleged practices by the defendants that cause merchants to pay supra-competitive, exorbitant and fixed interchange fees for the acceptance of these credit card payments.

“Merchants have little or no ability to negotiate with Visa and MasterCard for lower interchange fees, and these fees are a ‘hidden tax’ that raise prices paid by consumers for almost every product they buy,” said K. Craig Wildfang, a partner at Robins, Kaplan, Miller & Ciresi LLP, which represents the plaintiffs. “Visa and MasterCard have previously been found to have ‘market power’ in the relevant markets, so Visa, MasterCard and the banks now have the burden of proving that they have set the interchange fees at the correct competitive level. Even Visa’s own economists admit that they cannot satisfy this burden. Due to Visa and MasterCard’s market power, the United States has the highest credit card interchange fees among industrialized countries. Regulatory authorities in many other countries, from the European Union to Australia, have recently adopted measures to reduce interchange fees, but in the United States, it will take action by the courts to accomplish this.”

“Prior litigation, which challenged narrow aspects of Visa and MasterCard’s collusive conduct, has proven ineffective at restraining the increase in credit card interchange fees, and as regulatory action is unlikely, class action litigation is the only alternative that offers merchants any prospect for relief from high, and rising, interchange fees. The card issuing banks that control Visa and MasterCard have the ability to set the interchange fees as high as they want, without any market force to restrain them,” said Wildfang.

“Interchange fees are just a way that credit card companies squeeze merchants to enhance their revenue stream. There is absolutely no need for these fees to be so high, and without anything to control them, the banks and the credit card companies continue to find ways to escalate the fees. We hope this lawsuit leads to significant changes,” said Mitch Goldstone, president and CEO of 30 Minute Photos Etc. and 30minphotos.com, a national online boutique photo service. Goldstone and co-owner Carl Berman write The Credit Card Interchange Blog, at http://www.waytoohigh.com.

“The U.S. credit card system is seriously broken and mismanaged, and millions of merchants and consumers are unnecessarily paying for it through credit card interchange fees that are increasing at an alarming rate. This lawsuit will hopefully result in a much-needed major reform of the credit card industry,” said Michael Schumann, co-owner of Traditions Classic Home Furnishings.

“Small merchants do not have any options available to them to fight this individually, but collectively, I am confident we can make a difference against big banks and credit card companies. These interchange fees definitely affect my bottom line, and I’m ready to stand up for a change,” said Jonathan Mathias, owner of A Dash of Salt.

"Scan Credit Card Firms for Antitrust": (editorial - Cincinnati Enquirer)

Scan Credit Card Firms for Antitrust - Editorial

The supermarket giants are taking on the credit-card giants in an antitrust lawsuit that could save money for every food shopper in America, whether you swipe plastic through those card-readers or use cash.

Kroger has joined Safeway and other chains in suing Visa U.S.A. Inc. for alleged price-fixing in setting the interchange fees that merchants pay card issuers for every transaction.

Credit-card officials claim merchants just want to shift their costs of doing business onto the backs of consumers, but we can't help wondering why credit-card company transaction fees keep rising when the volume of those transactions has been swelling like a tsunami. If anything, as volume explodes, we would expect card companies could afford to knock down per-transaction fees. Higher fees are passed along to all shoppers - cash customers as well as card users - in the form of higher grocery prices. The courts should take a thorough look at the allegations to see if the industry practice rises to the level of antitrust violation.

This is the second round of lawsuits against the big credit-card companies. Last month, a group of small retailers, on behalf of all retailers, sued in federal court in Connecticut against Visa, MasterCard International and several large issuing banks. The lawsuit accuses them of setting "exorbitant" transaction fees. In lawsuits as well as other issues, size does matter. Wal-Mart, the world's biggest retailer, in 2003 negotiated a multibillion-dollar settlement with both Visa and MasterCard.

Kroger and the other chains say they aren't trying to kill transaction fees. They just want them to be determined by volume and other competitive market forces. They argue the ever-rising fees are harder to justify in this day when credit-card charges are processed electronically and almost instantaneously, and when annual transactions total a stupendous $1.7 trillion. Kroger says in the last five years, its credit and debit-card fees have jumped 215 percent and have been boosted 11 times. The chains insist they are not looking for a fat payoff in court. They just want to force Visa to moderate its fees. Let's hope any savings won ultimately end up in supermarket shoppers' pockets

Click here to view The Cincinnati Enquirer, July 18, 2005 editorial

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. http://www.nrf.com/

Visa Sued for Price-fixing - Grocers, Drug Chains Unhappy With Credit-card Fees (MSNBC)

Click here to view MSNBC coverage

View the Complaint Filing

Click here to read the actual multibillion dollar class action complaint filed on June 22nd in U.S. federal district court against Visa, MasterCard and major banks.

[Disclosure: the editors of the Credit Card Interchange Blog: WayTooHigh.com are co-owners of 30 Minute Photos Etc., and lead plaintiffs in what is economically the most significant litigation since AT&T in the early 1980s].

Editors Comment: Kroger Co. and Other National Retailers Similar Litigation

As lead plaintiffs of the original June 22nd litigation against Visa, MasterCard and several US banks, we are delighted to learn that Kroger Co. and several leading national merchants are pursuing similar objectives. This underscores that the entire nation is seeking to protect consumers from unbridled interchange fee increases controlled by the credit card industry. We welcome the support of other merchants in this fight to escalate awareness for this unfair tax on businesses and hidden charge to consumers.

30minphotos.com, our online boutique photo service, like most e-commerce businesses, must accept credit card transactions, yet we too are faced with nearly one-hundred separate charge catagories, based on the type of cards used.

If you are an accredited journalist and would like to schedule an interview, please send your request to: corpcommunications@30minphotos.com

Carl Berman and Mitch Goldstone
co-editors, WayTooHigh.com

7 Big Retail Chains Sue Visa, Saying Its Fees Are a Form of Price Fixing (NYT's July 16)

The New York Times - The most recent case is unusual because it involves some of the largest players in the supermarket and convenience store industry. It also comes just days after John Philip Coghlan, Visa's new chief executive, publicly reached out to merchants on his first day on the job.

"It was widely known that Visa has gone around to individual merchants to keep them on board and keep them quiet on these issues," said Avivah Litan, a payments industry analyst at Gartner. "MasterCard has not done the same thing. They have been more lax."

Click here to read article (NYT, Eric Dash, July 16, 2005- Subscription required)

Grocery Chain Operator Kroger Co. And Several Other Large Retailers are Charging Visa USA Inc. With Price-fixing on Credit-card Transaction Fees (AP)

By DAN SEWELL AP Business Writer - Kroger, others sue Visa over price-fixing

Last month, a group of small retailers filed a lawsuit in Connecticut federal court against Visa, MasterCard Inc. and several big banks, including Bank of America Corp. and Citigroup Inc., alleging they set "exorbitant" interchange fees. One of those plaintiffs, Mitch Goldstone, runs 30 Minute Photos Etc. of Irvine, Calif., and also an online photo service. He said the transaction fees are increasingly significant as more business is done online. "I'm very encouraged by it," Goldstone said Friday of the Kroger-announced lawsuit. "I'm delighted there is additional attention to the unlawful price-fixing."

Click here to read article
MSNBC

Kroger Co. And Other National Retailers File Similar Federal Antitrust Interchange Lawsuit Against Visa U.S.A. Inc.

The complaint filed by seven national retailers including Kroger Co. against Visa U.S.A., Inc. seeks similar injunctive relief to stop their anticompetitive interchange fee practices.

Click here for a copy of the complaint lawsuit

Group of Supermarkets and Drugstore Chains Sues Visa U.S.A. (PMA Newsline)

Retailers sue Visa, claiming price fixing

A group of supermarkets and drugstore chains has sued Visa USA, San Francisco, Calif., USA, and its Visa USA unit, accusing the credit card association of price fixing, restricting competition, and keeping companies from negotiating lower rates, Reuters reports. In the lawsuit, which was filed yesterday in U.S. District Court for the Southern District of New York, the retailers contended that Visa's restrictions allowed it to extract "supracompetitive, artificially inflated" fees, and maintain "monopoly power" in some markets. Visa did not immediately return calls to Reuters seeking comment.

Companies filing the lawsuit included grocers Albertsons Inc., Kroger Co., Safeway Inc., and Ahold USA Inc., as well as drugstores Walgreen Co., Jean Coutu Group's Eckerd Corp., and Maxi Drug Inc. The plaintiffs are seeking an injunction and treble damages from Jan. 1, 2004 to the present, the article says. The lawsuit accuses Visa of unlawfully setting interchange fees charged to merchants each time customers use Visa credit card to make purchases, and imposing rules that preclude merchants from negotiating lower fees.

This lawsuit follows on the heels of an earlier one filed by a handful of merchants, including PMA member Mitch Goldstone, president and CEO of 30 Minute Photos Etc., Irvine, Calif., USA, and www.30minphotos.com, an online photo service. Goldstone and co-owner Carl Berman also write The Credit Card Interchange Blog, at www.waytoohigh.com.

Visa's new CEO, John Philip Coghlan, said earlier this week his past experience will help him reach out to merchants.

Click here to read article

"The View From Visa's New Boss" (BusinessWeek)

Encouraging words from new Visa U.S.A. CEO, John Coghlan

From BusinessWeek Online: -Schwab exec John Coghlan is also a former merchant, and he says that experience will color his tenure at the payment-card giant.

When former Visa USA CEO Carl Pascarella announced plans to retire last year, he left some big shoes to fill -- and some thorny legal problems to solve. In 2002, Visa and MasterCard paid $2 billion to settle a lawsuit filed by Wal-Mart (WMT ) and other merchants over debit-card fees. Last month, another group of merchants sued the card companies over credit-card fees.

But rather than hire a lawyer as its next CEO, Visa took the peacemaker approach and named a former merchant. On July 11, the card association announced that its new CEO is John Coghlan, who, prior to spending 17 years as an executive at Charles Schwab (SCH ), ran a small business called San Francisco Grocery Express Ltd. The 54-year-old San Francisco native vows to pay special attention to merchants' needs during his tenure.

Click here to read the article (BusinessWeek Online, July 12, 2005)

"Peeved Over Plastic, Some Stores Are Yelling 'Charge.'" (Investor's Business Daily)

Investor's Business Daily - Retailers Gripe About Card Fees, Which Are Confusing And Rising. Tuesday July 12, 7:00 pm ET Donna Howell. Peeved over plastic, some stores are yelling "charge."

Click here to view article

New Visa U.S.A. CEO Challenged to Defuse Merchant Rebellion (AP)

NEW VISA U.S.A. CEO ASKED ABOUT INTERCHANGE SUIT

The Associated Press reported on July 12th that VISA U.S.A., the country's largest payment system named John Philip Coghlan as its new chief executive officer. During the Monday conference call, while not discussing the antitrust litigation, of which 30 Minute Photos Etc. is a lead plaintiff, AP did report that Mr. Coghlan said he could "empathize with merchants, having been one himself."

The article explains that the merchant interchange fee average about 1.7 percent of each transaction and yields more than $20 billion annually in revenues. While Wal-Mart has already been successful in negotiating fees, the new litigation seeks to become a nationwide class action.

David Robertson, publisher of The Nilson Report said "This represents some thinking outside the box. "Visa's challenge is no longer getting its cards into the hands into consumers or convincing merchants that they need to accept the cards. The challenge now is build better relationships with merchants."

The article explained that Visa's new CEO is faced with helping the credit card association defuse this merchant rebellion against rising interchange fees.

Click here to view the Associated Press article

"Visa and MasterCard International no Strangers to Antitrust Violations - (GreenSheet.com)

The Green Sheet current July edition has a lengthy article regarding the background and updates on this antitrust violation litigation.

Click here to read the article (subscription required)

26 Leading Issues: Credit Card Interchange Fees (WayTooHigh.com)

[Repost from Nov 2, 2005]

26 leading issues affecting credit card interchange fees, by Mitch Goldstone and Carl Berman, editors, WayTooHigh.com

1) Merchants' interchange fees have risen even though network fees are decreasing.

2) The credit card companies have an unbridled ability to raise fees at will. Member banks of the credit card associations are in our opinion, co-conspirators.

3) Since 1999, the PIN debit fees rose 267 percent.

4) In the early 1990s there were about a dozen separate interchange fees, today there are nearly one hundred. These interchange fees seemingly always increase and have not decreased.

5) Visa and MasterCard fix uniform credit card interchange fees, which are agreed to and used by all Visa and MasterCard banks.

6) This collective horizontal price fixing violates Section 1 of the Sherman Act.

7) Even the cost for paying out reward benefits to affinity card holders has declined and is getting more stingy. Ex: American Airlines now charges a fee of $250 each- way to cash in frequent flyer mileage to upgrade from coach to business-class on international flights. This is an audacious game few understand.

8) The credit card associations are extending loyalty and kick-back programs to consumers which few can actually figure out the value of. If merchants could even figure their actual cost - from nearly one-hundred separate rates - and listed the actual Interchange fee as a separate item on the customers' receipt, people would be less likely to want frequent flyer mileage rewards once they understood how much more they are actually paying for those perks.

9) This is a hidden tax on consumers and merchants.

10) With today's technologies, the interchange structure is now inefficient. In our opinion, consumers don't benefit and merchants don't benefit.

11) Part of this inefficiency relates to credit card companies where only 1 in 2000 of their mail solicitations lead to signing up just one new cardholder. Credit card companies mail out 5.24 billion mail solicitations each year yet only 4-10ths of 1% reply. This means 5 billion pieces of mail are garbage. What other industry has such huge profits that they can afford to throw away 5 billion pieces of junk mail every year?

12) Why does it cost so much to use a credit and debit card, rather than with writing a check? There is a zero interchange fee for checks, the money goes directly from the consumer to the retailer. Example: The checking system works without any of these fees. The difference between credit card and check fees are also a study in competition; banks impose various fees on account holders and on merchants for writing and processing checks, from zero to a variety of rates in order to stay competitive.

13) Today, the card associations have lower costs and even no float expense when debit cards are used. With technology, there is less fraud and no need for paper receipts. Processing and telecommunication fees are lower and now automated. With interest rates so low for so long, even the cost of the the regular float has declined.

14) Merchants shouldn't have to cover the cost for card holder credit risks. Defaults by card holders should not be paid by merchants, but rather, issuers should be more careful who they extend credit to.

15) There is no ability to bypass the credit card network. For instance, 30minphotos.com operates a national online boutique photo service where all online orders require transactions to be completed with credit cards, this parallels the entire online retail segment.

16) Part of the proof that the card association and their interchange fees are a monopoly is that even though rates continue to rise, merchants are forced to use their products.

17) Trickery and confusion. Even though there are lower interchange rates for debit cards, it is increasingly more difficult to distinguish debit cards. It's difficult to see the "debit" or "check card" reference and retail clerks can easily ring up the sale as a charge card, thus paying higher rates.

18) When consumers present merchants with faulty magnetic strips on their cards it cannot be swiped by the card reader. This causes merchants to then manually enter the number, which costs more even though there is an identical risk to the card association. But, the charge for manually entering a card is excessively higher, and even higher if the address and zip code are not entered.

19) In 1994, the Visa and MasterCard interchange fees on a $100 transaction for the largest non-supermarkets was about 1% and 1.33%, today it is 1.53% and 1.58%, respectively. For the smallest non-supermarket merchants, the charge was about 1% and 1.31% in 1994; today it is about 1.61% and 1.72%, respectively.

20) There is no added direct value or benefit to the merchant by accepting an affinity card or any other card, such as the Visa Signature card.

21) Australia, the European Union and the United Kingdom are samples where interchange regulations work. The U.S. is the only market where interchange fees are increasing. Canada, for example, has a zero interchange fee for debit cards and their PIN Network is the most popular way to transaction business. U.S. Interchange fees are 3-times higher than in Australia and two-times higher than in the UK. Australia is a great example - since the nation regulated these rates, merchants paid $500 million less. This translates into lower costs to consumers. The Australian CPI actually declined and there was an increase in card usage.

22) The only leverage merchants have is in choosing their payment processor. Those fees are highly competitive, yet the Interchange fees cannot be negotiated.

23) Because banks are now permitted to issue Amex and Discover cards, MBNA and Citibank plan to issue Amex cards, which means, merchants will be flooded with the higher costing premium cards (this translates into a 50% increase in costs from about 140 bp [basis points] to 210 bp. I anticipate they will then convert their classic cards to higher priced "signature" "affinity" and "business" cards.

24) The argument by Amex was that their card holders spend more money. Perhaps this is based on buying diamonds and luxury items, but when you are at a convenience store, the amount charged from a Visa card is typically the same as for Amex. As MBNA and Citibank switch from Visa to Amex, they are appealing to the same group of cardholders with the same spending patterns.

25) How can groups like "Americans for Consumer Education and Competition" be expected to be objective? [(ACEC is financially supported by VISA USA]. They suggest merchants want to pass along the interchange fees to consumers. The fact is that this litigation has nothing to do with "shifting' costs from merchants to consumers, but rather it is about reforming the system so that competition works and will drive total costs down so that both merchants and cardholders have lower costs.

26) The Bank of America announced acquisition of MBNA will only worsen the competitive problems faced by merchants, and will further reduce competition in the credit card business.

[Source: WayTooHigh.com]

"Naples Merchant Takes On Credit Card Firms Over Fees" (Naples Daily News)

The Naples Daily News (subscription required) has a July 1st feature profile on Mike Schumann, one of the five lead plaintiffs in this litigation against Visa, Mastercard and several US banks. This coverage is extensive and clearly identifies the issues by personalizing Mr. Schumann's concerns.

..."Last week Schumann was one of five merchants who filed a class-action lawsuit against Visa and Mastercard and the nation's biggest banks, alleging they have conspired to fix prices on a type of fee charged to merchants, called an interchange fee. The interchange fees, which have increased dramatically in recent years, cost merchants $20 billion a year, said K. Craig Wildfang, Schumann's attorney with the Minnesota-based law firm Robins, Kaplan, Miller and Ciresi. The law firm gained notoriety for representing the state of Minnesota in the historic $6.6 billion tobacco settlement in 1998".

Click here to view article (subscription required)

Merchants sue MasterCard, Visa over ‘exorbitant’ interchange rates

Internet Retailer - Strategies for Multi-Channel Retailing

30minphotos.com leads five merchants in filing a class action suit charging MasterCard International, Visa International and their merchant banks with illegally fixing interchange rates—the fees merchants must pay to accept credit cards.

Five merchants have filed a class action suit charging MasterCard International, Visa International and their merchant banks with illegally fixing interchange rates—the fees merchants must pay to accept credit cards.

------------------

Lead plaintiff in the lawsuit—filed last week in U.S. District Court in Connecticut—is 30minphotos.com, a national online boutique photo service. The lawsuit asks for an injunction to prevent the two card associations and their members from collectively setting interchange fees and asks for yet-to-be determined damages.

The suit contends that the two card associations conspire to set interchange rates, causing merchants to pay supra-competitive and exorbitant fees for card acceptance. Merchant acquirers typically pass increases in interchange on to the merchant in the form of higher discount rates. As a result, the interchange fee acts as a minimum merchant discount fee, according to the lawsuit.
In the suit, the merchants also argue that because Visa and MasterCard have combined market share of 73% of the general-purpose card market, they can raise interchange fees without losing merchants.

The merchants also contend that increases in interchange are not based on increased costs. “Interchange fees are just a way that credit card companies squeeze merchants to enhance their revenue stream,” says Mitch Goldstone, president and CEO of 30 Minute Photos Etc. “There’s absolutely no need for these fees to be so high.”

Online retailers especially have little recourse but to accept the fees because 100% of their businesses require credit card acceptance, Goldstone says.

In a statement, Noah J. Hanft, MasterCard general counsel, said that the lawsuit is “misguided, and MasterCard looks forward to defending interchange, which is necessary for the operation of a four-party system and has been found lawful, efficient and pro-competitive.”

Visa would not discuss specifics of the suit. But in a statement, Paul Cohen, vice president of Visa USA, said that the association plans to “vigorously defend interchange—a business practice that has been both successful in the marketplace and found to be legal in federal court.”

Credit Card Fees Draw Lawsuit By Merchants

Credit Card Fees Draw Lawsuit By Merchants

The National Retail Federation explains why the interchange fee case is so important to all merchants and consumers.

Click here to view article

(Gazette-Times; Knight Ridder Newspapers)

TV-News 14, Charlotte NC - Watch the video link

To watch video coverage of the credit card lawsuit from TV-News 14 in Charlotte, NC

Cliick here to watch video

Class-Action Suit Alleges Visa, MasterCard Fix Fees (DM News)

An antitrust class-action lawsuit has been filed against Visa, MasterCard and several major U.S. banks on behalf of a group of merchants, alleging the fixing of credit card fees, law firm Robins, Kaplan, Miller & Ciresi LLP said yesterday.

Robins, Kaplan, Miller & Ciresi, Minneapolis, is representing merchants in the suit, such as 30 Minute Photos Etc., Irvine, CA; Traditions Classic Home Furnishings, St. Paul, MN; CHS Inc., also of St. Paul; A Dash of Salt, Bridgeport, CT; and KSARRA, Newtown, CT.

The suit, filed June 22 in U.S. District Court for the District of Connecticut, alleges practices by the defendants that cause merchants to pay "supra-competitive, exorbitant and fixed interchange fees for the acceptance of credit card payments," according to the law firm.

"Merchants have little or no ability to negotiate with Visa and MasterCard for lower interchange fees, and these fees are a 'hidden tax' that raise prices paid by consumers for almost every product they buy," Robins partner K. Craig Wildfang said in a statement.

Also named in the suit are Bank of America, Citibank, Bank One, Chase Manhattan Bank, JPMorgan Chase, Fleet Bank, Capital One and other banks.

This move was undertaken because prior litigation proved ineffective and regulatory action is unlikely, Wildfang said in the statement.

DMNEWS - June 24, 2005 By: Chantal Todé Senior Editor

Merchants Sue Banks Over Credit Card Fees - (WJLA - ABC News)

Merchants Sue Banks Over Credit Card Fees

(Click here to view story)

Suit Challenges Credit Card Fees - (ConsumerAffairs.com)

Suit Challenges Credit Card Fees

June 24, 2005 A class action lawsuit filed by several small businesses accuses Citigroup, Bank of America and other large banks of illegally fixing the price of credit card transaction fees.

Click here to view entire article

(ConsumerAffairs.com)

Companies Assert "Interchange Fee" On Every Charge Is Exorbitant And Unfair (Inc. Magazine)

Antitrust Suit Filed Against Visa, MasterCard

Companies assert "interchange fee" on every charge is exorbitant and unfair. By: Max Chafkin - Inc Magazine

June 24, 2005--Five small businesses filed a class action lawsuit in Connecticut Thursday charging that Visa and MasterCard have been illegally fixing the fees charged to merchants who accept their cards.

The suit alleges that by dictating so-called "interchange fees" -- a percentage of the total sale that is charged to the merchant -- Visa and MasterCard have created a non-competitive environment in which businesses cannot negotiate for lower rates. The lawsuit also seeks an injunction that would allow businesses to negotiate rates with member banks in addition to unspecified damages.
Fees vary depending on the type of card but are usually around 2%.

While Visa said that it is still reviewing the complaint, Paul Cohen, a Visa spokesperson, defended the fee structure in a statement as "a business practice that has been both successful in the marketplace and found to be legal in federal court."

Interchange fees came under fire in 2003 when Wal-Mart settled with the card companies for $3 billion dollars. As part of the settlement, the retailer won the right not to accept certain high fee debit cards, which are generally favored by banks because they bring in high revenues. Card companies argue that the high-fee premium cards are good for merchants since they attract bigger spenders.

Mitch Goldstone, whose Internet photo service 30 Minute Photos Etc. is one of the companies bringing the suit, complained that the fees have forced him to raise prices. "It is a huge hidden tax on consumers," he said.

Said Visa's Cohen, "We believe the merchants in this suit are seeking to shift their normal costs of doing business onto someone else -- the consumer."

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 Etc.is 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.

Click here to read entire article (subscription required)

CHS Joins Battle Against Credit Card Fees (Convenience Store News)

CHS Joins Battle Against Credit Card Fees

NEW YORK -- A coalition of retailers has filed an antitrust class-action lawsuit against Visa, MasterCard, Bank of America, Citibank, Bank One, Chase Manhattan Bank, JPMorgan Chase, Fleet Bank, Capital One and other major banks, alleging that the companies colluded to charge supra-competitive, exorbitant and fixed interchange fees for the acceptance of these credit-card payments.

The ultimate goal of the lawsuit is to give retailers a voice in setting the correct competitive levels for interchange fees, K. Craig Wildfang, a partner at Robins, Kaplan, Miller & Ciresi LLP, who represents the plaintiffs, told Convenience Store News. "No single merchant, even Wal-Mart, would be able to change the system. That's why merchants are best served by a class-action lawsuit," Wildfang said.CHS Inc., which is based in St. Paul, Minn., and has more than 800 Cenex-branded convenience stores, is one of five retailer plaintiffs.

The others are Photos Etc. Corp., doing business as 30 Minute Photos Etc., of Irvine, Calif.; Traditions Classic Home Furnishings of St. Paul, Minn.; A Dash Of Salt LLC of Bridgeport, Conn.; and KSARRA LLC of Newtown, Conn."Merchants have little or no ability to negotiate with Visa and MasterCard for lower interchange fees, and these fees are a 'hidden tax' that raise prices paid by consumers for almost every product they buy," Wildfang said in a statement.

"Visa and MasterCard have previously been found to have 'market power' in the relevant markets, so Visa, MasterCard and the banks now have the burden of proving that they have set the interchange fees at the correct competitive level. Even Visa's own economists admit that they cannot satisfy this burden."Due to Visa and MasterCard's market power, the United States has the highest credit-card interchange fees among industrialized countries.

Regulatory authorities in many other countries, from the European Union to Australia, have recently adopted measures to reduce interchange fees, but in the United States, it will take action by the courts to accomplish this."Wildfang told CSNews that he has already received several calls from retailers interested in joining the suit and ultimately expects that more will do so.

An Ongoing SagaHigh credit-card fees have always been a hot topic among retailers, but the discourse heated up after April 1, when Visa and MasterCard imposed a series of significant increases, some as high as 2.9 percent, particularly for new premium cards. In addition to increasing rates, Visa and MasterCard began urging consumers to move to the higher-rate premium cards and away from lower-rate standard cards, according to the National Retail Federation.In May, the Federal Reserve Bank of Kansas City held a conference on credit and debit card interchange fees, saying the rapidly escalating fees amount to a hidden tax on U.S. consumers.

"The fees that the credit card companies charge defy logic and they are using them to increase profits far more than to provide any meaningful benefits to retailers," Teri Richman, NACS senior vice president for public affairs and research, said at that time. "Credit card company rules effectively prohibit retailers from providing discounts for cash or checks in all but a handful of situations. As a result, consumers pay more even when they don't use their cards. It's time for this constant picking of consumers' pockets to come to an end.

"For more on the ways high interchange fees affect convenience retailers and petroleum marketers, see Cost of Credit, a CSNews exclusive report.

Click here to view entire article

NEWS ALERT - June 23, 2005

MOST ECONOMICALLY SIGNIFICANT ANTITRUST CASE SINCE THE AT&T LITIGATION IN THE EARLY 1980's ANNOUNCED

On June 22, 2005, Visa, MasterCard and major U.S. banks were charged with antitrust violations for price fixing credit card interchange fees by a group of merchants seeking remedy to stop this anticompetitive practice and to restore a competitive balance for merchant payment processing.

Disclosure: 30 Minute Photos Etc., owned by the founders of The Credit Card Interchange Blog - WayTooHigh.com are lead plaintiffs in this class action complaint.

Retailers Sue Credit Card Groups Over Fees (MSNBC)

Retailers Sue Credit Card Groups Over Fees

A group of US retailers has filed a class action lawsuit against Visa and Mastercard, the world's two biggest credit card associations, and some of their biggest member banks, claiming the transaction fees they charge are too high

(Click here to view article)

Merchants File Most Significant Antitrust Case Since The Early 1980's AT&T Litigation; Against Defendants VISA, MasterCard and Major U.S. Banks

VISA, MasterCard and Major U.S. Banks Charged With Antitrust Violations For Fixing Credit Card Interchange Fees

Merchants Seek Remedy to Stop Anticompetitive Practices and Price Fixing Minneapolis (June 2005) – Robins, Kaplan, Miller & Ciresi L.L.P. has filed an antitrust class action lawsuit in the U.S. District Court for the District of Connecticut against Visa, MasterCard, Bank of America, Citibank, Bank One, Chase Manhattan Bank, JPMorgan Chase, Fleet Bank, Capital One and other major banks on behalf of merchants alleging collusive practices of their setting, by horizontal agreement, credit card interchange fees at supra-competitive levels. The Complaint seeks injunctive relief to stop the alleged anticompetitive practices plus damages.

The plaintiffs, Photos Etc. Corporation, doing business as 30 Minute Photos Etc., of Irvine, CA; Traditions Classic Home Furnishings of St. Paul, MN; CHS Inc. of St. Paul, MN; A Dash Of Salt, L.L.C. of Bridgeport, CT; and KSARRA, L.L.C. of Newtown, CT, represent a class of merchants that operate millions of commercial businesses throughout the United States that accept Visa and MasterCard as a form of payment. At issue are the alleged practices by the defendants that cause merchants to pay supra-competitive, exorbitant and fixed interchange fees for the acceptance of these credit card payments.

“Merchants have little or no ability to negotiate with Visa and MasterCard for lower interchange fees, and these fees are a ‘hidden tax’ that raise prices paid by consumers for almost every product they buy,” says K. Craig Wildfang, a partner at Robins, Kaplan, Miller & Ciresi L.L.P., who represents the plaintiffs. “Visa and MasterCard have previously been found to have ‘market power’ in the relevant markets, so Visa, MasterCard and the banks now have the burden of proving that they have set the interchange fees at the correct competitive level. Even Visa’s own economists admit that they cannot satisfy this burden. Due to Visa and MasterCard’s market power, the United States has the highest credit card interchange fees among industrialized countries. Regulatory authorities in many other countries, from the European Union to Australia, have recently adopted measures to reduce interchange fees, but in the United States, it will take action by the courts to accomplish this.”

“Prior litigation, which challenged narrow aspects of Visa and MasterCard’s collusive conduct, has proven ineffective at restraining the increase in credit card interchange fees, and as regulatory action is unlikely, class action litigation is the only alternative that offers merchants any prospect for relief from high, and rising, interchange fees. The card issuing banks that control Visa and MasterCard have the ability to set the interchange fees as high as they want, without any market force to restrain them,” says Wildfang, who is leading the litigation at the Firm with attorney David A. Balto, and others. Co-counsel is Richard Bieder of Koskoff, Koskoff & Bieder PC in Bridgeport, CT.

“Interchange fees are just a way that credit card companies squeeze merchants to enhance their revenue stream. There is absolutely no need for these fees to be so high, and without anything to control them, the banks and the credit card companies continue to find ways to escalate the fees. We hope this lawsuit leads to significant changes,” says Mitch Goldstone, President and CEO of 30 Minute Photos Etc. and 30minphotos.com, a national online boutique photo service. Goldstone and co-owner Carl Berman write The Credit Card Interchange Blog, at www.waytoohigh.com.

“The U.S. credit card system is seriously broken and mismanaged, and millions of merchants and consumers are unnecessarily paying for it through credit card interchange fees that are increasing at an alarming rate. This lawsuit will hopefully result in a much-needed major reform of the credit card industry,” says Michael Schumann, co-owner of Traditions Classic Home Furnishings, which operates retail furniture stores in St. Paul and Minneapolis, MN and Naples, FL.

“Small merchants do not have any options available to them to fight this individually, but collectively, I am confident we can make a difference against big banks and credit card companies. These interchange fees definitely affect my bottom line, and I’m ready to stand up for a change,” says Jonathan Mathias, owner of A Dash of Salt, L.L.C., a restaurant and catering business in Bridgeport, CT.

Interchange Price-Fixing Complaint Filing

Click here to view the June 22, 2005 antitrust class action law suit in the U.S. District Court for the District of Connecticut.

BofA, Wachovia named in lawsuit

BofA, Wachovia named in lawsuit

Source: bizjournals.com

National Retail Federation - "Smart Brief"

Retailers rally against credit card fees

Following successful attempts by Wal-Mart Stores, CVS, Home Depot and others to cut credit card transaction fees, a group of smaller businesses filed a lawsuit yesterday against several major banks, alleging collusion on these fees. A lawyer for the plaintiffs said the banks are conspiring on these fees, instead of competing for merchants' business with lower fees. The banks did not provide comment. "Consumers ... don't need to have money taken out of their pockets just so the banks can have higher profits," National Retail Federation president Tracy Mullin said. The Wall Street Journal (subscription required) (6/23)

Merchants Sue Banks for Price-Fixing (AP)

Click here for complete story

Retail merchants seek remedy to stop alleged anticompetitive practices - Photo Marketing Association

From pmai.org - The International Photo Marketing Assn "Newsline" (June 23, 2005)

Robins, Kaplan, Miller & Ciresi L.L.P., Minneapolis, Minn., USA, has filed an antitrust class action lawsuit in the U.S. District Court for the District of Connecticut against Visa, MasterCard, Bank of America, Citibank, Bank One, Chase Manhattan Bank, JPMorgan Chase, Fleet Bank, Capital One and other major banks on behalf of merchants alleging collusive practices of their setting, by horizontal agreement, credit card interchange fees at supra-competitive levels. The complaint seeks injunctive relief to stop the alleged anticompetitive practices plus damages.

The plaintiffs include PMA member Photos Etc. Corp., dba 30 Minute Photos Etc., Irvine, Calif., USA; as well as Traditions Home Furnishings, Minneapolis, Minn.; CHS Inc., St. Paul, Minn., USA; A Dash Of Salt LLC of Bridgeport, Conn., USA; and KSARRA LLC of Newtown, Conn., USA, all representing a class of merchants that operate millions of commercial businesses throughout the United States that accept Visa and MasterCard as a form of payment. At issue are the alleged practices by the defendants that cause merchants to pay supra-competitive, exorbitant and fixed interchange fees for the acceptance of these credit card payments.

"Merchants have little or no ability to negotiate with Visa and MasterCard for lower interchange fees, and these fees are a 'hidden tax' that raise prices paid by consumers for almost every product they buy," says K. Craig Wildfang, a partner at Robins, Kaplan, Miller & Ciresi L.L.P., who represents the plaintiffs. "Visa and MasterCard have previously been found to have 'market power' in the relevant markets, so Visa, MasterCard and the banks now have the burden of proving that they have set the interchange fees at the correct competitive level."

"We hope this lawsuit leads to significant changes," says Mitch Goldstone, president and CEO of 30 Minute Photos Etc. and www.30minphotos.com, an online photo service. Goldstone and co-owner Carl Berman write The Credit Card Interchange Blog, at www.waytoohigh.com.

To read today's article in The Wall Street Journal, "Merchants Expand Credit-Card Fight," click here. For an article in today's CNN Money, "Businesses to Visa: 'No More Fees,'" click here.

"Merchants expand Credit-Card Fight" (WSJ, June 23)

"Merchants expand Credit-Card Fight" (WSJ, June 23)

June 23, 2005 - Merchants Expand Credit-Card Fight Lawsuits That Claim Visa, MasterCard Collude on Fees Could Hit Issuers' ProfitsBy JOHN R. WILKE and ROBIN SIDEL Staff Reporters of THE WALL STREET JOURNAL June 23, 2005; The nation's largest banks face a growing legal and regulatory threat to one of their richest sources of profit: the more than $20 billion in transaction fees they charge merchants each year on every credit-card purchase made through MasterCard International Inc. or Visa USA Inc.More merchants are challenging these fees, alleging that banks -- acting collectively through Visa and MasterCard -- are illegally fixing prices. Some recently have won large, undisclosed settlements with Visa and MasterCard that slash the charges, known as interchange fees. Wal-Mart Stores Inc., the nation's largest retailer, won concessions valued at more than $1 billion, while others, including Best Buy Co., Toys "R" Us Inc., Home Depot Inc. and CVS Corp. are negotiating or have already won fee cuts, lawyers close to these cases said. ... Another plaintiff, Mitch Goldstone, president of 30 Minute Photo etc., an online photo service in Irvine, Calif., calls Visa and MasterCard "a giant cartel working against merchants and imposing a hidden charge on consumers."....

Click to read the WSJ article (subscription required)

Businesses to Visa: "No More Fees" (CNN)

Businesses to Visa: "No more fees" WSJ: Merchants call transaction fees charged by banks, Visa, MasterCard price-fixing and collusion. (CNN-Money)

Credit purchases abroad are getting more expensive (LA Times, June 19)

From The Los Angeles Times - Sunday, June 19, 2005, "Travel Insider" by James Gilden

Credit purchases abroad are getting more expensive. Costs of currency conversion are rising as more card-issuing banks add fees to Mastercard's and Visa's charges. By James Gilden, Special to The Times.

Click here to view article (subscription required)

Shell Squares Up to Bank Card Firms, Demands Fee Cut (Opisnet.com)

SHELL SQUARES UP TO BANK CARD FIRMS, DEMANDS FEE CUT

Shell is preparing to flex its market muscle with credit card firms, Oil Express learns. The company, the leading gasoline retailer in the U.S. with nearly 10% of the market, has told Visa and MasterCard that it wants to see a considerable cut in the merchant fees charged to Shell jobbers and dealers. If a reduction isn't forthcoming, the major is readying a strategy that could lower marketer costs without the co-operation of the card firms, says a senior marketing executive.
"We have been having very direct, face-to-face discussions with Visa, MasterCard and American Express over the past 60 days and we expect to see some significant relief for marketers using the Shell brand," says Shell marketing VP Hugh Cooley.

How much relief? Shell has told the firms that it believes fees should be half of what they are today, and should be based on the services the card firms actually provide, plus a small margin. That would put the number that Shell wants to see between .5% and 1%, not the 2% or more some of the card firms are charging.

"This is not something we're doing for us, but something we need to do for our marketers," Cooley told Oil Express last week. "We don't believe it is fair that they (bank card companies) should use gasoline merchants to support their other programs.

Elsewhere, notably in European Union countries and Australia, banks are held to a cost-benefit formula for setting rates, resulting in interchange rates that range from 0.5% to 0.7%. By contrast, rates in the U.S. are the highest in the world (OE 05/16).

Shell is looking for a cut in card fees within the next 60 days or so and if current negotiations yield no positive result, the major "will have to escalate to additional means to get the fees reduced.
Cooley won't discuss the additional steps that Shell might take, but admits that a number of options are on the table, including nominating certain areas of the country where the company will no longer accept one or more of the bank cards.

"People could also make a decision to litigate, but that would not be our preference," he says.
The company has already imported from Europe an individual who has spent the last three years negotiating with card firms there, and has reached out to its largest jobbers, asking them to use their political and banking connections to spread the word that card fees are a huge issue for marketers.

Shell may also step up marketing incentives for its proprietary credit card, which carries no fee at all. Currently, the company is offering consumers who apply for the card a $25 credit on their statement. The promotion should add another 35,000 new card-holders to Shell's card base by month's end, Cooley notes.

Carole Donoghue, Oil Express, Oil Price Information Service, www.opisnet.com

Credit Card Fees a Growing Challenge for Convenience Stores (NACS)

Credit Card Fees a Growing Challenge for Convenience Stores (Fact Sheet: National Association of Convenience Stores, www.nacsonline.com)

While convenience stores were able to rein in most of their expenses in 2003, a significant expense continued to grow: credit/debit card fees. In 2003, these fees equaled approximately 80 percent of a store's profits, and are expected to grow in the coming years.

• Credit card fees are high and growing. For convenience stores, credit/debit card fees, as a percent of gross profit, jumped 20.8 percent in 2003, and now equal 5.8 percent of gross profit. This means that these fees cost the average convenience store $24,265 in 2003, a figure approaching the average per-store pretax profit of $30,700. On an industry-wide basis, the total cost of credit/debit fees was approximately $3.2 billion.
  
• Credit- and debit-card transactions accounted for 32.3 percent of the convenience store industry's $337 billion in sales in 2003, or more than $108 billion in volume. This is a huge increase from the $80.2 billion in credit/debit volume in 2002.
  
• Credit-card fees are the fourth-largest expense at the store level. NACS estimates that card fees are projected approximate the cost of store rent by 2020.
  
• Particularly with the rising cost of gasoline and the higher transactions at the pump, retailers are seeing the impact of credit-card transaction fees. The overall increase in average annual gas prices from 2002 to 2003 (from $1.40 to $1.55) led to a 10 percent increase in the use of credit cards at the pump, with 49 percent of all gasoline customers paying with plastic in 2003. The huge increase in gasoline prices in 2004 -- and 2005 -- has accelerated that trend, and NACS estimates that 70 percent of all gasoline purchases are now paid with plastic.
  
• With razor-thin margins for retailers selling motor fuels, the credit card associations often make more profit on a gallon of gasoline than the retailer selling the gasoline.
  
• For the first time in 2003, Americans made more in-store payments electronically than they did with cash or checks, according to a Dove Consulting/American Bankers Association study 52 percent of all purchases were made with debit and credit cards.

click here to view entire article

Photo Retailer protesting Higher Fees

From The International Photo Marketing Association Newsline:

Photo retailers among small-business owners protesting higher fees from Visa/MasterCard
The letter that arrived in late February at 30 Minute Photos Etc. was so nondescript that co-owner Carl Berman nearly tossed it in the trash, The Wall Street Journal reports. But then he read the fine print that infuriated him: As of April 1, merchants like 30 Minute Photos would pay a higher fee when customers used one of several premium Visa and MasterCard credit cards issued by the country's biggest banks. Merchants swallow the per-transaction "interchange" fees they fork over when customers pay by plastic because they chalk it up to the price of doing business in a credit-card world. But now they are incurring increasingly higher fees for certain trendy cards that give affluent consumers an array of perks -- from an early chance to score hot concert tickets to snagging reservations at a popular restaurant.
As a result, a backlash is brewing among small-business owners who say they are hurt by the fee creep more than bigger merchants, the WSJ says. To fight back, the owners of 30 Minute Photos, for instance, e-mailed a letter to 25,000 customers on March 31, asking them to contact their charge-card providers to justify the fee increase.
"This is another one of those opportunities for credit-card companies to enhance their revenue stream on the backs of merchants," says Mitchell Goldstone, co-owner of the Irvine, Calif.-based photo-developing retailer that also operates a national online photo service.
Fee increases aren't limited to premium cards, the WSJ says. The National Retail Federation estimates the latest round of interchange fees will raise rates anywhere from 2.7 percent for a basic Visa card transaction to 9 percent or more for a transaction made with a corporate card from MasterCard. All types of credit cards are included in the fee increases -- premium cards linked to airlines, for instance. Fees on a few cards will actually drop; Visa recently lowered some debit-card interchange fees. But the gap between the fee rates for basic and premium cards is widening. On April 1, MasterCard for the first time raised the fees on its premium World card higher than those on its normal card. Visa, which had already been charging more for the use of its high-end Signature card, has raised those prices again.
Merchants can't pick and choose which cards they accept from customers once they sign a contract with Visa or MasterCard, the article says. The card associations set the interchange rate, but the banks issuing the cards receive the fees. Over the past year, Visa and MasterCard have intensely promoted "premium" credit cards to banks, particularly Signature and World, in an effort to get more cards into American wallets in what is a maturing credit-card market. Banks are more likely to promote the cards if they garner a higher fee. Now that merchants are expected to foot more of the bill while customers receive perks, some are devising ways to discourage credit-card use. One tactic: encouraging customers to pay by alternative means.
Ultimately, consumers may feel the effects of the fee increases if merchants raise prices to cover their costs, the WSJ says. The National Retail Federation, for one, calls the fee increases a "hidden tax increase for American consumers." While bigger businesses can absorb the fees more easily or pass them along unnoticed by raising prices a few pennies, small businesses say they risk alienating customers when they're forced to raise prices. Visa and MasterCard say the new rates are justified because consumers who use the premium cards tend to spend more, which in turn benefits the merchants.
To read the complete April 12 article, "Merchants Balk At Higher Fees For Credit Cards," visit www.wsj.com.

Why you should be concerned about interchange fees

Why merchants should be concerned:

Every business that accepts credit cards should have a seat at the table to help design and modernize the future interchange system. The most recent credit card associations' rate increase on April 1st dared merchants. 30 Minute Photos Etc. responded and we hope you will too. Now with nearly one hundred separate fees, including a new set of fee increases for affinity cards (frequent flyer and reward cards), cardholders are not the only ones being taken on a ride. These monstrous interchange charges are a hiden tax on consumers as well.

Interchange fees are just a way that credit-card companies squeeze merchants to enhance their revenue stream. There is absolutely no need for these fees to be so high, and without anything to control them, the banks and the credit card companies continue to find ways to escalate the fees.

(written by Mitch Goldstone and Carl Berman - WayTooHigh.com)

The Credit Card Interchange Reform Objectives and Goals

The goal of this credit card interchange blog is to draw attention to this issue that affects nearly all merchants and consumers.

Part of this informational effort includes pending litigation to reform a system that is unfair, discriminatory and is a hidden tax on consumers. The credit card imposed interchange fees are added into the cost of doing business. Those without access to credit cards - typically consumers with lower economic means - end up paying more. While they pay in cash, the price for products and services are the same for cash or charge card. Merchants pass on these fees equally to credit card and cash customers.

The interchange rates therefore discriminate against economically disadvantaged, especially people within inner-cities where cash is predominantly used. These interchange fees are a hidden tax on the poor; an example is a large convenience store chain which pays upwards of $30 million a year in credit card interchange fees, yet nearly 40% of their customers pay cash.

Solutions to benefit merchants and consumers

Solutions:

1) Prohibit credit card associations from fixing uniform credit card interchange fees.

2) Prohibit credit card associations from enforcing rates that limit merchants' ability to avoid high interchange fees.

3) Permit issuers, acquirers and merchants to voluntarily agree on interchange fees.

4) Discontinue collectively-set interchange fees. (The Visa and MasterCard networks could function efficiently without collectively fixed interchange fees. Even if members of Visa and MasterCard did not fix the interchange fees, the network could continue in their role as clearinghouses between issuing and acquiring banks. There are many examples of similar networks that function very efficiently without collectively-set interchange fees).

5. Please add your comments and suggestions for additional solutions below...

Merchants Balk at Credit Card Fees

By GWENDOLYN BOUNDS and ROBIN SIDELStaff Reporters of The Wall Street Journal. -4-24-05 - From The Wall Street Journal Online

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The letter that arrived in late February at 30 Minute Photos Etc. was so nondescript that co-owner Carl Berman nearly tossed it in the trash. But then he read the fine print that infuriated him: As of April 1, merchants like 30 Minute Photos would pay a higher fee when customers used one of several premium Visa and MasterCard credit cards issued by the country's biggest banks.

Merchants swallow the per-transaction "interchange" fees they fork over when customers pay by plastic because they chalk it up to the price of doing business in a credit-card world. But now they are incurring increasingly higher fees for certain trendy cards that give affluent consumers an array of perks -- from an early chance to score hot concert tickets to snagging reservations at a popular restaurant.

As a result, a backlash is brewing among small-business owners who say they are hurt by the fee creep more than bigger merchants. To fight back, the owners of 30 Minute Photos, for instance, e-mailed a letter to 25,000 customers on March 31, asking them to contact their charge-card providers to justify the fee increase.

"This is another one of those opportunities for credit-card companies to enhance their revenue stream on the backs of merchants," says Mitchell Goldstone, co-owner of the Irvine, Calif.-based photo-developing retailer that also operates a national online photo service.

Fee increases aren't limited to premium cards. The National Retail Federation estimates that the latest round of interchange fees will raise rates anywhere from 2.7% for a basic Visa card transaction to 9% or more for a transaction made with a corporate card from MasterCard. All types of credit cards are included in the fee increases -- premium cards linked to airlines, for instance. Fees on a few cards will actually drop; Visa recently lowered some debit-card interchange fees.

But the gap between the fee rates for basic and premium cards is widening. On April 1, MasterCard for the first time raised the fees on its premium World card higher than those on its normal card. Visa, which had already been charging more for the use of its high-end Signature card, has raised those prices again.

For example, a business owner who sells a $100 pair of earrings may pay $1.65 in interchange fees if that customer uses Visa's Signature card. The same purchase made on a basic Visa card might cost the merchant $1.51. But the pricing structure is far from simple. Like the intricate fare schemes in the airline industry, there can be dozens of interchange rates at the same time, based on the types of merchants and the amount of card transactions they generate. Big merchants with large numbers of transactions can often negotiate better interchange rates from Visa and MasterCard than smaller businesses. A large gas station chain, for instance, may pay less than the owner of a single restaurant.

Merchants can't pick and choose which cards they accept from customers once they sign a contract with Visa or MasterCard. The card associations set the interchange rate, but the banks issuing the cards receive the fees. Over the past year, Visa and MasterCard have intensely promoted "premium" credit cards to banks, particularly Signature and World, in an effort to get more cards into American wallets in what is a maturing credit-card market. Banks are more likely to promote the cards if they garner a higher fee.

Now that merchants are expected to foot more of the bill while customers receive perks, some are devising ways to discourage credit-card use. One tactic: encouraging customers to pay by alternative means. "I'm going to aggressively welcome checks now," says Joe Hodulik, owner of Framers' Workshop Inc. in Lake Forest, Calif. Same with Mike Steffens, who runs Essence Entertainment Talent Agency in Costa Mesa, Calif., and has written letters to his credit-card processor to complain about the fee increases. "I'm real anticredit," he says.

Leslie Blesius, owner of the high-end home furnishings store Jolie Maison in Highland Park, Ill., is considering imposing a minimum purchase of $20 for customers who pay by credit. Credit cards, she says, are "becoming very cost-prohibitive for me." As for the higher fees on premium cards, she asks, "Because someone gets something from United Airlines should I be paying a higher fee?"

Among the perks customers who use Visa's Signature card may receive: landing the penthouse suite at the upscale Bellagio hotel in Las Vegas and getting silver products personalized from a variety of chic stores.

MasterCard's World, meantime, has a concierge service to help cardholders get golf tee times or with personal shopping. Consumers sometimes pay a higher annual fee for these prestige cards than the run-of-the-mill variety -- the Northwest Airlines Signature card from U.S. Bancorp costs $90 a year, for example. The banks use the interchange fees to help pay for the loyalty programs associated with the cards.

Ultimately, consumers may feel the effects of the fee increases if merchants raise prices to cover their costs. The National Retail Federation, for one, calls the fee increases a "hidden tax increase for American consumers."

"What good is it for me when they show up with a premium card?" asks Taylor Bond, president and chief executive of Children's Orchard, an 85-unit franchise reseller of upscale children's clothing based in Ann Arbor, Mich. "For an organization like ours where every penny counts, we are a bit befuddled about how this does anything for us but subtract from our bottom line."

While bigger businesses can absorb the fees more easily or pass them along unnoticed by raising prices a few pennies, small businesses say they risk alienating customers when they're forced to raise prices. "What consumers don't get is that when a fee is passed on to a business, sooner or later it gets passed on to a consumer," Mr. Steffens says.

Visa and MasterCard say the new rates are justified because consumers who use the premium cards tend to spend more, which in turn benefits the merchants. MasterCard estimates that its World card, introduced in late 1996, generates six times more transactions per card than its platinum card. Overall spending on the World card is seven times higher than on platinum.

For Visa, the eight-year-old Signature card represented about 10% of the $1.04 trillion in sales charged on Visa cards last year. Notably, Visa launched a new advertising and marketing push for Signature last year and introduced another tier of pricing for merchant fees for a midlevel card called Traditional Rewards that is higher than its basic card.

The latest round of interchange fee increases comes at a time when Visa and MasterCard are facing more competition than ever from longtime rival American Express Co., which is widely regarded as having the highest interchange rates in the industry. Another big rival: debit cards, which are the fastest-growing segment of the card business and have lower fees than traditional cards.

American Express doesn't disclose its interchange fee, but its U.S. "discount" -- which includes interchange and other fees on all the cards it offers -- averaged about 2.4% last year -- or $2.40 for every $100 spent. A Morgan Stanley report found the weighted average for Visa and MasterCard interchange fees will rise to 1.86% in 2010 from the 1.75% rate last month.

American Express is also taking on Visa and MasterCard when it comes to financial institutions. For years, Visa and MasterCard prohibited their member banks from partnering with American Express, but those rules have now been tossed out, leaving the marketplace open. American Express has already formed partnerships with Citigroup Inc. and MBNA Corp.

"Although Visa and MasterCard's premium cards have been around since the late 1990s, each organization has re-emphasized these products in order to pre-empt member banks from joining forces with American Express," wrote Kenneth Posner, a Morgan Stanley analyst, in the report issued last month. He estimated that premium cards account for about 18% of MasterCard and Visa's consumer sales volume.

In the heated war for a slot in consumers' wallets, the credit-card companies and banks want spenders such as Todd Selby, a professional portrait and fashion photographer in New York City. Mr. Selby, who travels frequently, says he uses an American Airlines-affiliated credit card "for everything." As a small businessman, he considers the fee increases "absolutely ridiculous."

Aside from encouraging customers to pay by cash or check, small-business owners say they are frustrated by their lack of options. Mr. Selby complained to his credit-card provider but was told, "it's not our department." Mr. Hodulik of Framers' Workshop is taking a different approach. If a customer uses a premium card to pay for a purchase, he says he'll tighten his belt in other ways: "I just won't eat out that night."

[source: South Coast Today / WSJ]