Commentary: "Bringing Together Retailers and Consumers"

July 30, 2005

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, 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 –

Mitch Goldstone and Carl Berman
co-editors –

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…

July 23, 2005

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.”


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

July 19, 2005

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)

July 19, 2005

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

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, a national online boutique photo service. Goldstone and co-owner Carl Berman write The Credit Card Interchange Blog, at

“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)

July 18, 2005

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

July 18, 2005

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.

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

July 17, 2005

Click here to view MSNBC coverage