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MINNEAPOLIS -- In a move that promises to have a profound effect on American retailers, including supermarkets, a class action suit was filed against major banks and credit cards companies charging them with collusion in imposing onerously high interchange fees on retailers for credit card transaction.
The antitrust class action suit was filed this week by the law firm Robins, Kaplan, Miller & Ciresi L.L.P. in the U.S. District Court for the District of Connecticut. It targets Visa, MasterCard, Bank of America, Citibank, Bank One, Chase Manhattan Bank, JPMorgan Chase, Fleet Bank, Capital One, and other major banks on behalf of merchants, alleging that the defendants have engaged in collusive practices of setting, by horizontal agreement, exorbitant interchange fees for the acceptance of credit card payments. The complaint seeks injunctive relief to stop the alleged anticompetitive practices, in addition to damages.
The named plaintiffs are Photos Etc. Corp., doing business as 30 Minute Photos Etc., of Irvine, Calif.; Traditions Classic Home Furnishings of St. Paul, Minn.; CHS Inc., also of St. Paul; A Dash Of Salt, L.L.C. of Bridgeport, Conn.; and KSARRA, LLC of Newtown, Conn. They represent a class of merchants that runs into the millions -- every U.S. business that accepts Visa and MasterCard as a form of payment.
"Interchange fees are just a way that credit card companies squeeze merchants to enhance their revenue stream," says Mitch Goldstone, president and c.e.o. of 30 Minute Photos Etc., and 30minphotos.com, a national online boutique photo service. "There is absolutely no need for these fees to be so high, and without anything to control them, the banks and the credit card companies continue to find ways to escalate the fees." Goldstone and co-owner Carl Berman write The Credit Card Interchange Blog, at http://www.waytoohigh.com.
"Small merchants do not have any options available to them to fight this individually, but collectively, I am confident we can make a difference against big banks and credit card companies," said Jonathan Mathias, owner of A Dash of Salt, L.L.C., a restaurant and catering business.
According to the credit card companies, interchange fees are a necessary element of a worldwide system that benefits consumers and merchants alike, protecting them against fraud and the cost of providing funds while waiting for payment.
"Merchants have little or no ability to negotiate with Visa and MasterCard for lower interchange fees, and these fees are a 'hidden tax' that raise prices paid by consumers for almost every product they buy," said K. Craig Wildfang, a partner at Robins Kaplan and one of the attorneys representing the plaintiffs, in a statement. "Visa and MasterCard have previously been found to have 'market power' in the relevant markets, so Visa, MasterCard and the banks now have the burden of proving that they have set the interchange fees at the correct competitive level. Even Visa's own economists admit that they cannot satisfy this burden.
"The card-issuing banks that control Visa and MasterCard have the ability to set the interchange fees as high as they want, without any market force to restrain them," continued Wildfang.
He added that the United States has the highest credit card interchange fees in the industrialized world, and that many other countries, including Australia and members of the European Union, have recently passed measures to reduce such fees. U.S. justice officials, however, have so far declined to take similar measures against credit card companies and banks.
In an interview with PROGRESSIVE GROCER, Wildfang said that his firm has "spoken with many of the largest supermarket chains" on the issue. Although he declined to disclose the names of any companies, he said grocers, in common with other retailers, are "very concerned and very frustrated" by the lack of dialogue with the banks.
Wildfang noted that news of the filing prompted a huge response from merchants, who have been contacting his office to find out about joining the class action. "I'm not surprised, frankly," he said. "This is something the major merchants' associations have been talking for months, if not years."
However, he noted that litigation was a "last resort" for retailers who could see no other way to change what they see as an unfair practice. And change is the main motive for the suit, insisted Wildfang. "We're primarily interested in reforming the system, giving merchants a voice, so they're not just dictated to by the banks."
The Wall Street Journal reported yesterday that some retail businesses have recently won big, undisclosed settlements with Visa and MasterCard to cut high interchange fees, including Wal-Mart, which reportedly received concessions valued at over $1 billion. The article cited a figure of $20 billion in interchange fees that merchants are charged annually by Visa and MasterCard.