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    Discover Card Drops 'No Surcharge Rule'

    NEW YORK -- Major credit card provider Discover has agreed to drop its "No Surcharge Rule," essentially allowing merchants to pass on the cost of plastic payments directly to consumers. Consequently, the company is being dropped from the related antitrust class action pending in a Brooklyn federal court, lawyers for some merchants suing credit card companies said earlier this week.

    NEW YORK -- Major credit card provider Discover has agreed to drop its "No Surcharge Rule," essentially allowing merchants to pass on the cost of plastic payments directly to consumers. Consequently, the company is being dropped from the related antitrust class action pending in a Brooklyn federal court, lawyers for some merchants suing credit card companies said earlier this week.

    In their court filings, the merchants have complained that they are forced to pass along high processing fees to consumers via price increases. "The users of high priced cards should pay high charges, to finance their frequent flier miles and rewards points. But consumers should be able to avoid those charges if they choose, by using low-priced cards," said Mark Reinhardt, Reinhardt Wendorf and Blanchfield, St. Paul, Minn., one of the lead attorneys.

    In a letter late last week, the other lead attorney, Gary B. Friedman, of Friedman & Shube, New York City, informed the court of Discover's agreement to rescind the No Surcharge Rule, hailing it as a "significant development for the merchant class and, potentially, a pivotal step in the evolution of the payments industry."

    In a statement this week Friedman said, "On behalf of the merchant community, we applaud Discover's willingness to engage in real competition. Visa, Amex, and MasterCard are scared to compete on merchant fees. But we will succeed in eliminating their No Surcharge Rules too -- and when we do, consumers will flock to payment cards that carry lower merchant fees, such as Discover and PIN-based debit cards."

    The No Surcharge Rule cases are expected to be consolidated with another group of merchant class actions assigned to a separate judge -- the "interchange fee" cases, which challenge the systems by which Visa and MasterCard set their merchant fees as illegal price fixing.

    Dozens of merchant lawsuits have been filed in the past year against the credit card industry, prompted by the 2004 U.S. Justice Department antitrust suit against Visa and MasterCard, and Wal-Mart Stores Inc.'s $3 billion settlement last year.

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