Visa, MasterCard and a number major banks have agreed to pay retailers at least $6 billion to settle a long-running lawsuit that alleged the card issuers conspired to fix the fees that stores pay to accept credit cards. As part of the settlement, stores like Rite Aid and Kroger will be allowed to charge customers more if they pay using a credit card. The settlement, which is being hailed as the largest antitrust settlement in U.S. history, is seen as a major victory for merchants. They have been fussing for a long time about the billions of dollars in so-called “swipe” or “interchange” fees paid to banks for purchases made using credit cards.
But at a time when shoppers increasingly are using credit and debit cards, merchants will now have to decide if they can afford to charge shoppers extra for using the cards. I don’t believe most folks will want to pay more for purchases when they use a credit card instead of cash. Time will tell how this will work out.
The dispute between stores and banks began in 2005. That’s when large retailers, including Kroger Co., Safeway Inc. and Walgreen Co., began filing price-fixing lawsuits against Visa, MasterCard and other banks. The retailers claimed the credit card issuers worked together to fix the fees that stores pay to accept credit and debit cards. The fees, which vary depending on the type of store and the type of card, average about 2% of the price of a purchase.
Visa and MasterCard make money on the fees that stores pay for each customer who uses credit or debit cards for their purchases. The fees are set by card processing networks, but collected by, and divided with, the banks that issue the cards. For years, the card companies have been defending the fees they charge stores. They say stores benefit from being able to accept credit and debit cards from customers, who often spend more when they’re using “plastic” instead of cash or checks. That may well be true. While that may help our economy, it also results in more credit card debt for consumers.
Retailers wanted to charge an extra amount to customers who use credit cards for their purchases. The ability to charge customers who use the cards more for their purchases would reduce the retailers’ costs for accepting the cards. But up until now, Visa and MasterCard have banned stores from charging more to customers who use credit cards. But merchants have been allowed to offer customers discounts if they pay with cash. As part of the settlement, credit card companies have agreed to reduce swipe fees for eight months.
The temporary reprieve on fees is valued at $1.2 billion. The settlement does not apply to debit cards, which have grown in popularity for small-value transactions. A number of consumer groups are not very happy with this settlement, contending that it will result in purchasers who pay by credit card being hurt. They complain that neither the card issuer nor the merchant will feel the pain. While this settlement appears to be very good for the retailers, I have to wonder how good it really is for consumers. I suspect we will hear more on that aspect of the settlement.
Source: Associated Press
Contact us today for a free legal consultation with an experienced attorney.
Fields marked *may be required for submission.
If you would like to subscribe to the Jere Beasley Report digital edition, simply visit our Subscriptions page and provide the necessary information or call us at 800-898-2034.
Attorney Advertising - Prior results do not guarantee a similar outcome.