U.S. retailers sue world’s largest credit card issuer

July 16, 2005

U.S. retail chain stores Kroger’s, Walgreens and five other food and drugstore chains have filed a lawsuit against the world’s largest credit card company, Visa International Inc. The federal lawsuit claims the company practices fee fixing on transactions, and with restricting competition among member banks.

The retail merchants claim that Visa acts in collusion with its member banks to fix transaction fees taken as a percentage of each retail sale. The suit was filed Thursday in the U.S. District Court in Manhattan, and seeks unspecified damages.

Member banks, those banks that issue and process merchants’ Visa transactions, are unable to negotiate transaction fees directly with the merchant, and merchants are forced to accept Visa purchases regardless of the issuing bank. The complaint says, “The merchant restraints have resulted in exorbitant interchange fees that bear no relationship to the cost of the services being provided."

Merchants see the rising use of card transactions and the effect it has on their bottom line. The interchange fees are currently 1.75% from most banks, but on some cards it rose this year to 2.9%. The National Retail Federation said for 2004 that between Visa and MasterCard, they pulled in $17.4 billion, a surcharge borne by the consumer regardless of whether they pay by cash or plastic.

Retailers do not oppose transaction fees, but believe they should be based on market forces. They claim that technology has lowered the cost of processing the transactions, but the savings is not being passed along to them. There are currently four major credit card providers in the U.S.

Webpronews writer John Smith cites this merchant quote: "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."

A small group of Connecticut retailers filed a similar lawsuit last month naming along with Visa, MasterCard and several other large banks. The suit was filed in Connecticut’s federal court. That suit also calls the fees “exorbitant”.

The Vice-President of Visa, Paul Cohen, said "It appears this is another in a series of attempts by some merchants to receive all the value of electronic payments, while shifting their normal costs of doing business onto consumers."