ABA Joins Lawsuit Against Visa and MasterCard

The American Booksellers Association recently joined the National Association of Chain Drug Stores, National Association of Convenience Stores, National Community Pharmacists Association, and the National Cooperative Grocers Association as a plaintiff in an antitrust lawsuit filed in the U.S. District Court of Connecticut. The suit alleges that Visa USA Inc. and MasterCard International Inc., as well as major banks and credit-card companies, colluded to fix interchange fees. The plaintiffs are calling for a long-term overhaul of the credit-card interchange-fee system and are seeking damages.

In 2003, when Visa USA Inc. and MasterCard International Inc. agreed to settle a federal antitrust lawsuit by paying out some $3 billion in damages to retailers, lowering debit card interchange fees, and dropping their "honor all cards" stipulation, some experts predicted that the lawsuit would ultimately result in greater competition among the acquiring and issuing banks, which would then result in lower interchange fees for credit cards.

Over two years after the ruling, these predictions have been proven wrong: While Visa and MasterCard did lower interchange fees by about one-third on point-of-sale debit cards, they substantially raised interchange fees on credit card fees for all but a handful of large retailers.

In a competitive marketplace, Visa and MasterCard would never have been able to significantly increase interchange fees in this manner, argue the plaintiffs, who allege that MasterCard and Visa, their Acquiring Bank members (a member of Visa and/or MasterCard that acquires payment transactions from merchants and acts as a liaison between the merchant and the bank card network), and Issuing Banks (a member of Visa and/or MasterCard that issues Visa and/or MasterCard branded payment cards to consumers) are "participants in the conspiracy to fix Interchange Fees."

Craig Wildfang of Robins, Kaplan, Miller & Ciresi, counsel for the class plaintiffs in the case, told BTW that, coincidentally or not, the increase in interchange fees on credit cards effectively covered the $3 billion that MasterCard and Visa are required to pay out to retailers per the settlement in the federal antitrust litigation. "They gave with one hand and took away with the other," Wildfang said. "In a competitive market, if I raise my price, the buyer can go somewhere else. Few merchants can afford to not take Visa or MasterCard."

In their class action complaint, the plaintiffs note that "Interchange Fees were purportedly necessary in the early days of the Visa and MasterCard Associations to induce banks to issue cards to cardholders and to 'acquire' merchants for the Associations."

Today these justifications for collectively set fees are no longer valid, the plaintiffs said, since "the Associations are no longer required to transfer large numbers of paper receipts between member banks and Interchange Fees are no longer cost-based." The plaintiffs claim that merchants "have no choice but to continue to accept Visa and MasterCard's dominant Credit Cards" and given the ubiquitous nature of credit cards, "banks now would find it in their interest to issue Visa and MasterCard payment cards ... even without the promise of large Interchange Fee revenues."

The plaintiffs contend that both Visa and MasterCard and their member banks "engaged in unlawful contracts, combinations, and conspiracies in an unreasonable restraint of interstate trade or commerce in violation of Section 1 of the Sherman Act." --David Grogan