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

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.

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