A Big Fight Even for Activist Mitch Goldstone (Marshall Magazine)

March 13, 2008

[reposted from Oct. 2005]

Mitch Goldstone Leads A Rebellion, This Time Against Credit Card Fees

By Robert Barnett – University of Southern California “Marshall Magazine
It pays to read your mail, as Mitchell Goldstone knows and Visa and MasterCard are finding out.

Goldstone, a 1985 graduate of USC Marshall School of Business, and his partner, Carl Berman, are the co-founders of 30 Minute Photos Etc. and its online sibling, 30minphotos.com which, as the names suggest, develop photographs from film and digitized files, respectively.

Goldstone has made lots of news over the years, but nothing like this summer when his company became the lead plaintiff in a class action antitrust suit against Visa, MasterCard and major banks. The story made the pages of the Wall Street Journal, Time magazine and the New York Times.
Filed in federal court in Connecticut in June 2005 with four other small and midsize businesses, the suit accuses the credit card companies and the banks that issue their cards of illegally fixing the interchange fees that merchants pay for credit card transactions. The credit card companies have defended their interchange fees, with MasterCard’s general counsel calling them “beneficial, efficient and pro-competitive” in a statement the giant credit card company made during a recent Federal Reserve hearing.
Controversy is nothing to new to Goldstone. He’s drawn to social and economic causes the way some people have hobbies, and thinks nothing of spending hours and time and money–and overlaying all that with entrepreneurial inventiveness–on an array of projects. In addition to the class action suit, he organized Operation Photo this year to collect digital cameras for families of soldiers deployed overseas. He promoted tsunami relief for the Red Cross on the company website. He ran for city council in Irvine, CA.But the lawsuit against the giant credit card companies represents the biggest, most formidable opponent that Goldstone has ever faced. If he and the other plaintiffs win, it could cost the credit card companies billions of dollars.As with many of Goldstone’s past crusades, this one started almost by accident. In February, Goldstone and Berman received a notice in the mail that their interchange fees were being raised. “I usually throw them away,” Goldstone explained, ”but Carl brought it to my attention. When we started the business in 1990, there were a handful of interchange fees. Now there are nearly 100 different rates. And they’ve all been going up steadily. For example, the fee for debit cards has gone up 300% since 1999.”Goldstone wrote to the senior management at Visa and MasterCard, asking them to rescind the increase. “Always start at the top,” Goldstone stresses. “It’s one of the greatest lessons I learned at Marshall.”

No answer. He followed up with a phone call to the two companies. Still no response. And that got the ball rolling.

Today, Goldstone and Berman write and edit the blog, “WayTooHigh.com,” posting articles and editorials on the interchange fees and arguing that the fees are a hidden tax on consumers since they become part of the cost of all goods and services purchased. Their retail rebellion appears to be spreading. Kroger and six other national retailers filed their own suit against Visa U.S.A., and charged it with anticompetitive practices.

Creating a national groundswell for a cause he believes in is nothing new to Goldstone. In fact, he enjoys it. “It makes it fun,” Goldstone insists, “knowing we’re doing something that is going to help somebody.” In a sense, he sees it as part of his job. “That’s what being an entrepreneur is all about,” as Goldstone sees it. “It’s not just about making money. It’s about doing something that’s good because that’s the ultimate scorecard.”

Organizing Operation Photo is a perfect example of how social and economic issues just seem to find Goldstone – and how he uses his entrepreneurial skills to identify and promote a solution.

“I got a phone call at 7:00 in the morning right after Christmas of last year from Jennifer Petersen, a former 30 Minute Photos Etc. employee who had left to become a full-time mom,” recalls Goldstone. “She’d had a dream the night before. What if her husband was serving in the military and he wasn’t able to see their daughter? Was there any way we could get people to donate cameras to give to military families? By 8:00, the business plan was already cemented and finalized.”

Within days, they had Operation Homefront onboard to coordinate distribution, secured pledges from Kodak and other digital camera manufacturers for hundreds of new cameras, set up a “Operation Photo” website with a link from the 30 Minute Photos Etc. homepage, the press had jumped on the story, and the first cameras were already flooding in.

By the time Operation Photo wrapped up on July 4, it had collected over $150,000 worth of cameras and distributed them to grateful and appreciative families in and around military bases all over the country. In fact, many of the photos of new babies and birthday parties now being shared overseas are being developed at 30 Minute Photos Etc., thanks to its military family discount.
Goldstone always wanted to be an entrepreneur. A New Yorker by birth, he applied to USC specifically so he could enroll in what is now USC Marshall’s Lloyd Greif Center for Entrepreneurial Studies.

Goldstone and Berman started 30 Minute Photos Etc. in 1990 on the premise that family photos were among our most treasured possessions. They separated themselves from the one-hour and overnight photo competition by beating them in turn-around time, delivering a higher quality photo, staying ahead with new technology, and building a client base that included Hollywood celebrities and California Governor Arnold Schwarzenegger.

In the late 1990s, 30 Minute Photos Etc. was blindsided by the digital revolution in photography. Suddenly customers weren’t bringing in rolls of film. They were printing them off their home computers. Business took a nosedive. Goldstone transformed the company into an online boutique photo service, creating a website for customers to format and edit their digital images, and with the click of their mouse, have high quality prints processed and shipped immediately to wherever they lived in the United States. He even put a 24-hour live support capability right on the website.

Still it was a struggle to rebuild the business. In 1997, Goldstone bought some local cable spots for the MTV Video Music Awards, only to discover that the show would be featuring rap singer Eminem performing live. Offended by the rapper’s lyrics, Goldstone bought up all the local commercial time for the awards program so that organizations including the Family Violence Prevention Fund, the Museum of Tolerance, and the Human Rights Campaign Fund could ran public service announcements educating viewers on violence against women, bigotry, and gay rights.

“That was extremely expensive,” Goldstone recalls. “This was our whole campaign to get younger adults excited about our business and to use it. Instead we ran those spots because we believed it was the right thing to do. As it turned out, we also got a lot of media coverage for the educational campaign and ourselves,” he continues.

So what’s next for Mitch Goldstone? Wait and see. Visa and MasterCard may regret not answering their mail.

[Robert Barnett, a freelance writer in Los Angeles, is a contributing editor ofthe University of Southern California’s Marshall Magazine].

Banks Using Record Gas Prices To Soften Mortgage Meltdown

February 19, 2008

Let’s not forget to add Visa and MasterCard – the two giant credit card associations – to the list of those effectively profiteering from the world’s economic energy crisis. 

With all the added money flooding into the banks from record energy costs and motorists paying with Visa and MasterCard’s, we can only assume they are using these windfall profits to help cover their disastrously mismanaged mortgage meltdown.

Who would have thought that Visa, MasterCard and their thousands of member banks would punish motorists to help cover their other banking misadventures?

As crude oil prices rose again to record levels (above $100 a barrel) the thousands of member banks that run the giant credit card cartels are making mint off motorists’ anguish. 

It is more likely that drivers will be forced to reach for plastic, as few have enough paper currency to cover the record price to fill-up a tank of gas.  This means that unprecedented profiteering is taking place again because more people are forced to use Visa and MasterCard, then pay among the highest merchant interchange fees ever. 

When gas was $1.50 a gallon, just a short time ago, the service station interchange fees were significantly less.  Now, with these record prices, the banks are profiteering with unparalleled greed. 

  • Why exactly are the banks able to claim a percent from every sale, even when their costs are nearly unmoved? 
  • Whatever happened to MasterCard’s proclamation that they would cap interchange fees at $50.00 a fill-up? 
  • Why didn’t Visa join in the same interchange fee limit?
  • The top question is: If MasterCard and Visa could put a cap on merchant interchange fees at $50.00 per transaction for a gas station car fill-up, why can’t they equally provide the same rate structure for all retailers?

Related Links

FAST FACT: Record gas prices leads to possible profiteering and windfall for credit card companies

Banks Benefit When Oil Surges

Crude-oil Futures Hit $100 a Barrel on Nymex

More Oil Profiterring. A Barrel of Gas Now at $86

Oil Jumps to Nearly $100, Generates More Interchange Fee Profiteering

Oil Surges Past Record High, Above $78 a Barrel; Yields More Windfall Profiteering For Banks 

Interesting Question: Why Only Cap Interchange Fees At The Pumps?


 Want to know more about lead plaintiff ScanMyPhotos.com?  Click here and read their daily blog: Tales from the World of Photo Scanning

Happy New Year!

December 31, 2007

We Pause to Remember The Life of Benazir Bhutto

December 27, 2007

The nation of Pakistan and the world lost a champion for democracy today.  Along with millions of people around the globe, we too pause in memory of former Pakistan premier Benazir Bhutto.

Goldstone at CES, Update

December 21, 2007

Click here to view offical CES schedule

click here to view Businesswire press release

“EU to MasterCard: Credit Card Interchange Fees Must be Cut” (via MPC news release)

December 19, 2007

U.S. Groups Opposed to Unfair Credit Card Fees Applaud Ruling, Urge Congressional Action Here

[Merchants Payments Coalition, news release] Washington, D.C. – December 19, 2007 – Today a coalition of U.S. merchants opposed to unfair credit card fees (unfaircreditcardfees.com) welcomed a ruling by the European Union (EU) Competition Commission that MasterCard’s credit card interchange fees for consumers must be cut across the 26 member nations of the European community. 

Calling the MasterCard credit card interchange fee system illegal and an unfair burden on European consumers and merchants, EU Competition Commissioner Neelie Kroes said “Consumers foot the bill, as they risk paying twice for payment cards:  once through annual fees to their banks and a second time through inflated retail prices paid not only by card users but also by customers paying cash.”

“The EU commission report underscores that Visa and MasterCard hit consumers coming and going.  Cutting credit card interchange fees is an important victory for Europeans as well as for anyone traveling there,” said Tim Hammonds, President and CEO of the Food Marketing Institute, a Merchants Payments Coalition (MPC) executive committee member.  “But American consumers and merchants pay more than twice as much as Europeans – two dollars out of every $100 directly to Visa and MasterCard issuers.  These exorbitant hidden fees are out of proportion to the amount that would be paid in a competitive market,” added Hammonds.

The EU competition commission concluded that MasterCard abused its dominant position in the market by setting credit card interchange fee levels too high.  In January, Commissioner Kroes referred to Visa Europe and MasterCard as “an effective duopoly” that make “outrageous profits”, and that consumers are being “ripped off” by card fees. 

“Global recognition that Visa and MasterCard engage in illegal price fixing is a call to action for the Congress in 2008,” said Hammonds, referring to moves by Britain and Australia that have dramatically reduced credit card interchange fees in those countries as well in recent years. Credit card interchange fees paid by U.S. consumers and merchants to Visa, MasterCard and their member banks is expected to total more $40 billion dollars this year.

Credit card interchange fees in the United States, ultimately paid by American consumers, are currently more than twice as much on average as they are in Europe — the same credit card interchange fees just ruled too high by EU Commissioner Kroes.  U.S. interchange fees on average are about 2 percent, while Visa Europe rates, for example, are capped at 0.7 percent.

Raising hidden credit card interchange fees is how Visa and MasterCard encourage banks to issue more credit and debit cards – as long as rising rates are kept secret, consumers have no way of knowing the extra costs they are paying.  “That’s why U.S. interchange rates are among the highest in the developed world,” said Hammonds. 

In fact, Visa and MasterCard still treat American merchants and consumers the same way they used to treat the Europeans.  Here, credit card interchange fees are set in secret and credit card company rules make it practically impossible for merchants to tell customers how much they are really paying. 

Interchange rates in the United States are now approximately two percent; in other words, two dollars out of every $100 spent on credit and debit cards goes to the credit card companies and consumers who pay whether they use plastic, checks, or cash.  In the United States, interchange fees are the biggest credit card fee you have never heard of, dwarfing all the other credit card fees:  late fees, over-the-limit fees, balance transfer fees, annual fees, inactivity fees, penalty interest fees, universal default, and even ATM bank fees.     

The MPC is 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: UnfairCreditCardFees.com