Visa and MasterCard’s Impact From Banking Instability and Upheavel

Another outcome from the global banking crisis, including today’s news that Citigroup will acquire the banking operations of Wachovia, raises added concerns. While the banking industry’s two giant credit card associations want consumers to think that Visa and MasterCard play fairly, do not violate the law and offer boundless competition within the credit card market, the reality is that the banking industry consolidation is yielding an even more unstable and a more tilted playing area. 

Banks are defaulting and being nationalized.  How will this impact their credit card operations and will they attempt to further raise merchant interchange fees in an attempt to strengthen their balance sheets on the backs of businesses and consumers?

After Visa and MasterCard went public in an attempt to shift ownership from the banks, now many of the leading banks are consolidating and their percentage of control is creeping back.  JP Morgan Chase, Bank of America and Citigroup, all named defendants in the Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, are amassing assets and extending their cartel-like market power over the electronic payment system.

Consumers and businesses have lost confidence in the banking industry. Its corporate leaders are under fired, or have been fired. Government intervention at this late hour is doomed and the question remains: why didn’t the government clamp down on the trillions in unstable and ruinous mortgages years ago. A similar question is why did the government permit banks to reap hundreds of billions in anticompetitive and unfair fees at the expense of merchants and consumers?

While the banking crisis is taking all the attention, merchant interchange fees continue to slice away at our nation’s economy.  These fees generate nearly $50 billion each year at the expense of Americans; it removes much needed capital from our economy and is aggressively plundered by the banks as we are learning on the failed housing market and other disastrous schemes.

According to The Wall Street Journal (Sept 29), “Citigroup has put up for sale a Japanese call center valued at about $2 billion, the latest push by the financial conglomerate to drum up fresh capital.”  If the banks are desperately seeking cash, as a merchant, I am extra worried that they will again hit up their interchange pricing fiefdom to  get fast cash at the expense of retailers and consumers. 

How Las Vegas Mega Resorts Fight Visa and MasterCard Interchange Fees

Why can Las Vegas hotels do what Vias and MasterCard cannot?

During a recent stay at The Bellagio Hotel in Las Vegas, I noticed that guests are provided with an oppotunity to charge transactions to their room, or any other hotel in Las Vegas that is owned by the conglomerate.  The transaction is very easy – you just select from the list of hotels, sign your name and write your room number. It is that easy and super-fast.

The hotels are smart. They are trying to reduce their individual merchant interchange fees,save money and be convenient for guests.  Rather than charge each transaction during your stay to a credit card, the hotel is acting as it’s own electronic payment network. This affords just one total transaction to your charge card as you check out.  Rather than having several micro transactions, the hotels save significant interchange fees by having the credit card associations charge the card just once.

This procedure also calls into play why interchange fees are unfair.  The Bellagio like many retailers offering gift cards and handling their own electronic payments demonstrate why Visa and MasterCard’s pricing cartel is antiquated.  If The Bellagio can handle these transactions and connect with sister hotels along the Las Vegas Strip, think of the card associations’ member banks.  Often, the acquiring and issuing banks are the same, yet they charge for each part of the transaction.  Along with Visa and MasterCard’s discount rate, their system is broken and needs to be fixed.

Smart launch towards leadership, but it took $700 Billion to make washington listen

Finally, signs of reform and smart leadership in Washington!

The Congratulations to the U.S. House of Representatives. On Tuesday they passed the Credit Cardholders’ Bill of Rights Act.  It now requires passing by the U.S. Senate and the presidents signature.

Hopefully, no more unfair credit card merchant fees, moving forward.  The MDL antitrust litigation hopefully will take care of past abuses and penalties dating back to 2004, although I think it should date back, minimally to the early 1990s.

Will the president cave in to his banking buddies, or has the executive branch learned its lesson? Maybe they can next visit overturning the unfair and catastrophic penalty against working families and millions of consumers forced into bankruptcy, while Visa and MasterCard are shielded from fiscal liabilities?

The legislation did not, however address interchange fees, but hopefully, that will be forthcoming.   Merchant interchange fees are the key point of the Credit Card Fair Fee Act and represent nearly $50 billion in annual hidden taxes on Americans.

According to The Denver Post, “The Act stops unfair interest rate hikes retroactive to balances incurred under a previous rate; stops assessment of hidden interest charges on balances already paid off ; stops late fee charges even though consumers mailed payments 7 days ahead of the due date.

Visa Inc. and MasterCard International’s Insolvency

A funny thing happened on the way towards justice over Visa and MasterCard’s alleged price-fixing collusion charges.  The anxiety faced by the two leading card associations and its thousands of member banks turned into a temporary distraction when many banks failed due to other pricing schemes. 

Three-and-a-half years ago, when I became part of the first antitrust class action filings against Visa, MasterCard and its member banks, things seemed pretty calm. Millions of merchants knew that the credit card associations violated the law and illegally fixed prices and used their cartel-like market power to dominate.  With treble damages, the potential financial liability amounted to anywhere north of $300 billion.  That was a great deal of money.  Visa and MasterCard warned that if they were found guilty, they risked insolvency.

How the financial markets and the world has changed.  Many of the banks named as defendants are no more.  Even big investment banks and brokerage firms have been bailed out or closed down.  Some of the giant financial institutions were nationalized by the government, bought at fire sale prices or actually became insolvent and declared bankruptcy.  Many of the regulations that were designed to preclude such a meltdown are the same types of antiquated policies that enable MasterCard and Visa to maintain their market power and charge fees that are unfair in today’s high tech world, where electronic transactions should move at lightening fast speed and cost next to nothing to process.

Who would have thought that what was a mighty complaint became dwarfed in size? 

Today, Republicans are calling for the head of the SEC, supporting nationalization of a major industry, seeking to plunder another $700 billion and more to bail out what they knew all along was a slow motion car crash.  Less regulation and oversight was their mantra. 

The question is with the Credit Card Fair Fee Act and the Payment Card Interchange Fee and Merchant Discount Antitrust Litigation threatening to force MasterCard, Visa and its member banks to give up billions in unfair fees, what is the government doing now?  Will they wait until even more money is wasted?  Joining millions of retailers, I understand that through illegal antitrust price fixing, the nearly $50 billion in annual merchant interchange fees is wrong and in violation of the law. 

According to the Wall Street Journal, today we read that Federal Reserve Chairman Ben Bernanke wants “swift action on a Treasury Department plan to buy illiquid mortgage-linked securities and avoid severe spillover effects on the economy.” 

Why haven’t U.S. presidential candidates Barack Obama and John McCain both publicly addressed what amount to the largest antitrust case in our nation’s history.  And, why is our government nearly silent on this issue which is placing an unfair burden on shop owners and consumers?  It seems that they are chasing the news that the banks’ management failed and caused this nearly one-trillion dollar mess, but why aren’t they being proactive and commenting on Visa and MasterCard’s price fixing business model? 

This is another mess decades in the making.

The once mighty banks are now looking weak and threatened.  Their arguments about credit card fees is on the same level as they are handling their other financial crisis. 

Our nation is facing extraordinary economic stress on the financial markets, but it seems that government and politicians only put out fires when the entire building is engulfed in flames and not before.  The U.S. is forced to pay among the highest merchant interchange fees in the world, when technology and efficiencies over the years have led to nearly no actual costs to transact a credit card transaction. 

Visa and MasterCard look out!

UnfairCreditCardFees.com Background

Fight Unfair Credit Card Fees

The credit card interchange fee is the biggest credit card fee you’ve never heard of.  Nearly $2 of every $100 American consumers spend using credit cards go directly to the credit card industry through the interchange fee.

In 2007 alone, America consumers paid over $42 billion in credit card interchange fees.  Even consumers who don’t use plastic pay more through higher prices.

And the credit card interchange fee is set in secret – consumers don’t know they’re paying it through higher retail prices.  Interchange fees have risen a staggering 133% since 2001.

A rare bi-partisan consensus has emerged:  HR 5546/S 3086, The Credit Card Fair Fee Act which stops the price-fixing by the credit card industry and uses a transparent market-based process.

New On UnfairCreditCardFees.com

• Merchants and Consumers Welcome Judiciary Committee Passage of Bipartisan Legislation to Crack Down on the Hidden and Excessive Credit Card Fees
  Credit Card Fair Fee Act Would Mean Free Market Transparency, End Card Price Fixing
• Three in Four Americans Support Credit Card Fair Fee Act
  National Poll Finds Voters Want To Rein In Hidden Credit Card Fees That Inflate Prices; Legislation Would End Credit Card Secret Price Fixing (Poll Results)
• Merchants Say that Visa Fee Cut is Less Than Meets the Eye
  Credit Card Fees on Gasoline Might Actually Be Higher, Not Lower, Under New Visa Program
• Credit Card Fair Fee Act Picks Up Bi-Partisan Support
  Legislation will address credit card industry practices that hurt small business and their customers
• Merchants Welcome Senate Legislation to Fix the Problem of Hidden Credit Card Interchange Fees
  Senator Richard Durbin (D-IL) introduced the “Credit Card Fair Fee Act of 2008,” legislation that addresses the biggest credit card fee of all – the interchange fee, which cost Americans $42 billion last year.

Interchange is the biggest credit card fee you have never heard of

Credit card interchange fees are hidden in the cost of virtually everything you buy. Nearly $2 of every $100 the consumer spends using credit cards goes directly to the credit card companies. These fees inflate the cost of nearly everything consumers buy even when they pay by cash. Americans paid more than $42 billion in interchange fees in 2007, about twice what was paid in credit card late fees.

…and the fee you pay that pays for all that credit card junk mail!

The credit card interchange fee started out in the 1960s as a way to cover the real cost of a card transaction to the banks. Everything was done on paper then and credit card processing took far more time and manpower than today. Nowadays everything is done by computer yet credit card interchange fees have more than doubled since 2001 alone. Only 13% of the credit card interchange fee now goes to pay the real cost of the transaction, the rest goes to things like credit card junk mail.

US consumers pay twice or more what consumers in other countries pay

American consumers pay among the highest credit card interchange fees in the industrialized world, three times what British consumers pay. In Britain and some other industrialized countries, credit card interchange fees are viewed as unjustified and harmful to competition. Some countries, including the EU, are taking steps to deal with credit card interchange fees even though the fees consumers pay overseas are much lower than what Americans pay. The United States lags far behind the British, the European Community, and our other major trading partners in terms of grappling with this threat to open markets and free competition.

These secret credit card fees hurt consumers and merchants

US interchange rates are among the highest worldwide precisely because the fees are set in secret and hidden from view. Raising interchange fees is how Visa and MasterCard encourage banks to issue more credit and debit cards – as long as rising rates are kept top secret, consumers have no way of knowing the extra costs they are paying. Visa, MasterCard, and the big bank credit card issuers win; only merchants and consumers who are kept in the dark lose.

Visa and MasterCard operate like price-fixing cartels and violate federal antitrust laws. Visa issuers collectively set credit card interchange fees in secret and MasterCard issuers separately do the same. The fees can’t be negotiated and are not adequately disclosed to merchants or consumers. That’s why unfair credit card interchange fees continue to rise rapidly despite improved processing technology, consistently low interest rates, and rapidly rising card volume.

[Source: unfaircreditcardfees.com]

Congressman Welch Supports Credit Card Reform; Encourages Congress to Act on Credit Card Interchange Fees that Hurt Both Merchants and Consumers

Washington, D.C. – September 23, 2008 – Today, the House of Representatives passed the Credit Cardholders’ Bill of Rights Act, legislation to rein in unfair and deceptive credit card company practices. Congressman Peter Welch (D-VT) made the following floor statement in support of credit card company reforms and urged subsequent legislative action on credit card interchange fees, one anticompetitive card company practice not being specifically addressed today:

“This bill is the beginning of important reforms in credit cards – the beginning of increased protection for consumers of credit card companies. The other side of the coin, which we’re not taking up today but will hopefully get to, is for merchants who pay fees to credit card companies for every single credit card transaction – the so-called interchange fees.

Mr. Speaker, in the United States, our credit card interchange fees are the highest, the highest, in the entire world accounting for as much as 2% of the cost of every credit card transaction, in some cases a good deal more. These bloated interchange fees are passed on to the consumer. The average American family in fact pays an extra $300 a year in items they purchase as a result of credit cards.

I have introduced legislation, H.R. 6248, the Credit Card Interchange Fees Act, which would require credit card companies to disclose their interchange rates, terms, and conditions to consumers, businesses, and the public. In addition, the bill would empower the Federal Trade Commission to review these rates and rules and prohibit any practices that violate consumer-protection or anti-competitive laws. Chairman John Conyers also has important legislation – the Credit Card Fair Fee Act – that has been passed out of the Judiciary Committee and would give merchants a seat at the negotiating table to determine the fees assessed for every sale made by credit card.

In the next Congress, I look forward to continuing to work with my colleagues on the Financial Services Committee and the Judiciary Committee to pass legislation into law that protects both the consumer and the merchant from credit card companies.”

Congressman Peter Welch is the sponsor of HR 6248, the Credit Card Interchange Fees Act of 2008, and is also an original co-sponsor of HR 5546, the Credit Card Fair Fee Act. The Merchants Payments Coalition applauds Congressman Welch for his leadership on this important merchant and consumer issue and looks forward to prompt Congressional consideration of credit card interchange fees.
UnfairCreditCardFees.com is run by the Merchants Payments Coalition (MPC), a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses who are fighting against unfair credit card fees and fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition’s member associations collectively represent about 2.7 million stores with approximately 50 million employees. For further information, please visit http://www.unfaircreditcardfees.com

“Retail council leads charge against mounting credit card fees” (via The Ottawa Citizen)

Mark Anderson – Canwest News Service

A shop-owner forwarded an e-mail from the Retail Council of Canada the other day. It appears the council, which represents 40,000 storefronts across Canada, is attempting to organize opposition to ongoing increases in credit card fees, the “interchange fees” card companies charge retailers for the right to conduct business though Visa, MasterCard, American Express or any of the other major credit cards.

As it stands, Canadian retailers fork over about two per cent of the cost of any credit card transactions to card companies: if a customer purchases a lamp from a furniture store for $100, $2 goes to the card company; if the customer purchases a bedroom set for $10,000, $200 goes to the credit card company, and so on.

The retail council says interchange fees already amount to $4.5 billion annually, and have been escalating of late with the introduction of “premium” cards that provide lavish awards points to card users, the catch being that the cards come with higher interchange fees, which means retailers and, ultimately, consumers end up paying for those incentive programs.

Fine, you might say, the cost of doing business. Except the retail council argues that Canadian interchange fees are already among the highest in the industrialized world; Canada is one of the only jurisdictions that doesn’t regulate interchange fees; the fees should be charged on a flat fee basis, not as a percentage of the total sale cost; and the fees are being increased in an arbitrary and non-transparent way. (My Glebe-area retail contact, who doesn’t want to be named for fear of reprisals from card companies, says extra charges related to the issuance of premium cards came “out of the blue” and raised his average Visa interchange fees from about 1.7 per cent to 2.3 per cent).

Click here to read more

“Retail council wants credit card fees examined: wants to make hidden credit card fees an election issue” (via The Daily Observer)

Posted By , STAFF WRITER

The Retail Council of Canada wants to make hidden credit card fees an election issue.  The group, which represents more than 40,000 storefronts across the country and calls itself ‘the voice of retail in Canada,’ is targeting interchange fees, what card companies charge retailers for their service.  Derek Nighbor, senior vice-president of the Retail Council of Canada (RCC), said they aren’t adverse to a fair fee for a service, but they are concerned with the complete lack of control over what is being charged by the big credit card companies.   “We’re concerned with how these fees keep going up,” he said. “And they operate here with no regulation.”  “The interchange rate in Canada is around two per cent, which is one of the highest in the world,” meaning for every $100 charged on a card, the retailer pays the card company $2 for the privilege.   If this isn’t enough, the companies are adding premium versions of their cards, which cost even more to process.

Read more.

[source: The Daily Observer]

How to Support The Credit Card Fair Fee Act

Click here and tell your elected representatives to support HR 5546/S 3086, The Credit Card Fair Fee Act.

“Merchants Miffed by Credit Card Fees” (via The Halifax Herald)

Major credit card companies and the big banks are financing their new rewards programs on the backs of merchants, say some Halifax shop owners.  Retailers already pay credit card companies two to three per cent of every transaction for the conveniences that go with accepting payments on credit cards. On the new premium cards, those fees will double in some cases.” 

Read more.

[source: The Halifax Herald]

“Every 6 months, Visa/Mastercard raise their rates by 4-8 basis points”: Nova

I just received a call from a Nova sales rep with an interesting pitch. He explained that every six months, Visa and MasterCard raise their rates.  In Nova’s own words is the email followup I just received.

Mitch,

Thank you for your time on the phone today!  As you know, I am a representative of Nova, one of the largest credit card processors in the industry.  In addition to a very competitive rate, some of the other benefits of doing business with us are as follows:

Local Customer Support

• Next Day Funding
• FREE Supplies
• No Term Commitment
• Can Work with Existing Equipment
• Seamless Transition
• 1 Year Rate Guarantee
• Paid Cancellation / Software Fees (based on volume)

As we discussed, there was just a rate increase that occurred in April and there is another one coming up in October. Every 6 months, Visa/Mastercard raise their rates by 4-8 basis points.  Many businesses take the time during these periods to reevaluate their situation. I would like the opportunity to prepare a formal credit card comparison for ScanMyPhotos.com.  If you are able to fax a current statement to my attention, I am confident that I can secure you a competitive rate.  Once received, it would only take me a day or so to get back to you.  If you have any questions/concerns, please feel free to contact me.  Thanks again Mitch and have a great weekend!

Kind Regards,

Jeff ……
Account Executive
NOVA / MPS

New Visa and MasterCard Interchange Rates on Oct 3rd

Along with millions of other merchants, 30 Minute Photos Etc. [ScanMyPhotos.com] just received a two-page letter from Chase Paymentech today regarding a rate “modification” to both Visa and MasterCard’s interchange fees.

As with all prior letters over the years, this one was equally confusing.  As a lead plaintiff in the multi-billion dollar merchant interchange antitrust class action, you would think that I would have a clear understanding of these new terms.  

I have not a clue what the letter by David Carr, group executive of client services at Chase Paymentech Solutions, LLC said.  

A pfd file of the letter is posted on this link

While Visa and MasterCard suggest that this is part of their new campaign to be more transparent, the reality is that even with rates posted on their website, merchants are dizzy from the non-stop, anti competitive market power wielded by the two giant electronic payment associations and its thousands of member banks.