No April Fool’s Day Joke: Visa and MasterCard are Set to “Adjust” Interchange Rates on Tuesday (April 1st)

Visa and MasterCard Interchange Rates Revised on April 1

Why Visa, MasterCard and its Member Banks Are Accused of Illegal Price-Fixing by Agreement

Repost from Nov 21, 2007.  Click here

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

Note to Visa and MasterCard, Not All Costs Keep Rising; Technology Helps Lower Ours

It helps when you are not part of a giant cartel.

ScanMyPhotos.com [30 Minute Photos Etc.] is doing the inverse and not replicating Visa and MasterCard’s business model. We use technology and innovations to constantly help provide more value to our customers around the world (rather than to member banks around the world) and we lower prices.  Our pricing is so low that we receive calls every day asking how we can charge so much less then anyone else.  It helps that we were the entrepreneurs who pioneered this new technology and helped commercialize Kodak document imaging scanners for photo industry applications and, just like the speed of transacting an electronic credit card payment , we too are super fast – 1,000 pictures digitally scanned in 10-minutes.  See Kodak.com profile.

For regular updates on ScanMyPhotos.com and our daily tip and updates on super-fast photo scanning and digital imaging, read our other blog, Tales from the World of Photo Scanning, click here.  On our most recent update, we even have very favorable comments on another large, non-financial services  company.  

It is interesting that since our litigation, the rate of record interchange fee hikes seem to have somewhat mellowed.  While that is a good start, why exactly were they consistantly rising prior to our litigation and how was that justified as technology and efficiencies should have helped lower fees?

  

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

Will Visa USA’s “Consumer Education” Tool be Silenced During Their IPO?

Americans for Consumer Education and Competition, Visa USA’s PR and advocacy machine, which “has the financial support of Visa USA” has been quiet of late. 

Normally that are countering our comments and issuing press releasesthat taunt millions of merchants which accept Visa’s network of electronic payment cards.  They explain how helpful debit cards are and how it helps train teens about conserving money.  However, we wonder whether Visa’s Washington D.C.-based tool will pull up tent and move on, as their source of funding is required to lay low during their planned IPO period?   When industry experts begin to question why any investor would want to purchase equity in a company that faces possible insolvency due to their pending litigation, the company can be voiceless.  One of their most comical press releases appeared right after our first class-action complaint in 2005.  This one was adorable: they suggested that our litigation would force consumers to pay more. Instead, over the years, the member banks have vastly raised their rates and today we are paying $40 billion in hidden interchange fees each year.  They failed to mention that while their release provoked the courage to demand that consumers need efficiency and choice, Visa is the giant monster which, along with MasterCard control, 80% of the total electronic payment network and the only thing that is efficient is how easily they can fix prices and practice anti-competitive illegal maneuvering to enrich their pockets.

Also notice how convenient it is for the giant card association to be wedged in the midst of a “quiet period” imposed by the Securities and Exchange Commission.  Visa will be unable to comment when the EU Fair Trade ruling is announced within the next few weeks.  They will also have to be silent as more and more merchants question the foundation of the interchange fees.  They will have to be silent as motorists ask why Visa is reaping windfall profits for its member banks during our economic energy crisis.

[Background: When The Bill Comes Due,” Businessweek]

[commentary: WayTooHigh.com]

Why Visa, MasterCard and its Member Banks Are Accused of Illegal Price-Fixing by Agreement

We found this very simple defination of price-fixing on the Wikipedia site [click here for more info].

Price fixing is an agreement between business competitors to sell the same product or service at the same price. In general, it is an agreement intended to ultimately push the price of a product as high as possible, leading to profits for all the sellers. Price-fixing can also involve any agreement to fix, peg, discount or stabilize prices. The principal feature is any agreement on price, whether express or implied. For the buyer, meanwhile, the practice results in a phenomenon similar to price gouging.

Methods of price fixing will include selling at a common target price; setting a common “minimum” price; buying the product from a supplier at a specified “maximum” price; adhering to a price book or list price; engagement in cooperative price advertising; standardizing financial credit terms offered to purchasers; using uniform trade-in allowances; limiting discounts; discontinuing a free service or fixing the price of one component of an overall service; adhering uniformly to previously-announced prices and terms of sale; establishing uniform costs and markups; imposing mandatory surcharges; purposefully reducing output or sales; or purposefully sharing or “pooling” markets, territories, or customers.

Generally, price fixing is illegal, but it may nevertheless be tolerated or even sanctioned by some governments at various times, particularly among those whose countries are developing economies. See also Collusion.

In neo-classical economics, price fixing is inefficient: the anti-competitive agreement by producers to fix prices above the market price transfers some of the consumer surplus to those producers and also results in a deadweight loss.

In the United States, price fixing can be prosecuted as a criminal felony offense under section 1 of the Sherman Antitrust Act. ^[1] In Canada, it is an indictable criminal offence under section 45 of the Competition Act. Bid rigging is considered a form of price fixing and is illegal in both the United States (s.1 Sherman Act) and Canada (s.47 Competition Act). In the United States, agreements to fix, raise, lower, stabilize, or otherwise set a price are illegal per se.^[2] It does not matter if the price agreed upon is reasonable or for a good or altruistic cause; or if the agreement is explicit and formal or unspoken and tacit. In the United States, price-fixing also includes agreements to hold prices the same, discount prices (even if based on financial need or income), set credit terms, agree on a price schedule or scale, adopt a common formula to figure prices, banning price advertising, or agreeing to adhere to prices that one announces. ^[3] Although price fixing usually means sellers agreeing on price, it can also include agreements among buyers to fix the price at which they will buy products.

Under American law, exchanging prices among competitors can also violate the antitrust laws. This includes exchanging prices with either the intent to fix prices or if the exchange affects the prices individual competitors set. Proof that competitors have shared prices can be used as part of the evidence of an illegal price fixing agreement. ^[4] Experts generally advise that competitors avoid even the appearance of agreeing on price. ^[5]

Under U.S. law, price fixing is only illegal if it is intentional and comes about via communication or agreement between firms or individuals. It is not illegal for a firm to copy the price movements of a de facto market leader called price leadership, which has been seen to be the case in markets for breakfast cereals and cigarettes. But informal agreements or unspoken agreements to fix price also can violate the antitrust laws. The price-fixing laws apply to industries and professionals, for-profit concerns and non-profits and charities. ^[6] The United States Department of Justice Antitrust Division and United States Federal Trade Commission are responsible for enforcing federal price fixing laws; see also Sherman Antitrust Act. The Department of Justice handles both criminal and civil cases. As of 2004 under US law corporations may be fined up to $100 million for criminal price fixing; individuals can be charged and sentenced to prison sentences of up to 10 years for price-fixing violations. The Federal Trade Commission can prosecute firms for price fixing as a civil matter. Many State Attorneys General also bring antitrust cases and have antitrust offices, such as Virginia, New York, and California. Private individuals or organizations can bring their own lawsuits for triple damages for antitrust violations and also recover attorneys fees.

[Source: Via Wikipedia]

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

[With gas prices now at record levels, we are reposting this August 27, 2007 commentary] 

We received a call today from a news reporter from a national publication and was explaining the previously discussed $50.00 interchange fee cap at the pumps that MasterCard® had proposed some time ago. The reporter asked us why the level of $50.00 was limited just to service stations and not to all merchants? Good question, especially because by advocating the fee limit, the card association is, in our opinion, effectively explaining that even with credit card transactions, there is no reason to extend the interchange fee beyond that rate.

According to a P-I News Service article, this time last year, MasterCard’s logic about limiting interchange fees at service stations must be applied to all merchants. Whether it is Tiffany & Co, Cartier, or the local corner grocery store, the interchange fee should be limited to $50.00; we suggest it should be cost-based, and therefore closer to zero – just as it is in Canada when consumers use their PIN-based debit cards.

The article explained that “MasterCard Worldwide said … that it will establish a cap on the fees gas stations pay to clear consumer credit cards … ‘We have heard the merchant concerns loud and clear,’ Joshua Peirez, group executive of MasterCard’s global public policy, said in the statement. [On the retail gas cap], Peirez said it would apply to consumer credit and debit cards and will provide benefits to gasoline retailers on credit card transactions of about $50.00 or more … MasterCard added that the ‘unique structure’ of the petroleum distribution business means that gasoline retailers have been ‘disproportionately affected’ by rapidly rising oil prices.”

Click here to read the entire unedited article.

Another profile on this issue was covered by Digital Transactions: “MasterCard Will Post Interchange Rates, Cap Fees for Gas Retailers.”

Notice that only MasterCard had come up with the $50.00 cap at the pumps, and we are unsure why Visa® has been silent on this matter? Perhaps because merchants will do the math and demand that all transactions for Visa too – from watches to a bag of groceries – should also have the same $50.00 limitation – until we win the antitrust, price-fixing battle.

[commentary: WayTooHigh.com]