A number of retail advocacy groups filed suit today against Visa, Mastercard, Bank of America, Citibank, Bank One, Chase Manhattan Bank, J.P. Morgan, Chase, Fleet Bank, Capital One, and other banks, charging collusive practices by setting credit card interchange fees at “supracompetitive” levels.
The organizations include the National Association of Convenience Stores (NACS), the National Association of Chain Drug Stores (NACDS), the National Community Pharmacists Association (NCPA) and the National Cooperative Grocers Association (NCGA). Each of these groups represent thousands of respective companies including drug stores, convenience stores, and food stores all over the country.
This isn’t the first suit like this either. Back in the summer, a number of retailers including Kroger, the third largest retailer in the U.S. filed suit over the very same issues. The retailers claim the average household loses $232 a year due to these interchange fees. The National Retail Federations said Visa and MasterCard made $17.4 bill in fees in 2004 with the transaction fee as high as 2.9% on some cards.
“The credit card interchange system serves as a hidden tax, both on merchants and consumers, and raises the costs of all products regardless of the form of tender,” said Hank Armour, CEO of the National Association of Convenience Stores. “And these credit card interchange fees have rapidly increased over the past several years, despite efforts by individual convenience stores to control these costs or make the competitive market work.”
This is significant to the ecommerce world for a couple of reasons. First, a number of companies, including some rather large drug store chains are represented in part by these organizations. They do significant amounts of online business. Keep in mind, any company who accepts these credit cards pays these interchange fees.
The other reason is these interchange fees can hurt small businesses, particularly ones based in part or exclusively on the internet. These online businesses almost always only use credit cards and at somewhere between 1.75% and 2.9% a transaction, it could be difficult to sustain these numbers. How this lawsuit will change this is unclear, but between the two lawsuits, some major changes could be possible.
“Credit card interchange fees are the third-largest expense for many chain drug stores after rent and the cost of labor,” said Craig Fuller, CEO of the National Association of Chain Drug Stores. “These costs have skyrocketed over the past years even though the costs of credit card transactions for the banks have fallen. NACDS weighed many options in dealing with this issue and decided to seek litigation only after careful deliberations, with the ultimate recognition that it was necessary for the long-term reform of the system,” added Fuller.
The suit was filed in U.S. District Court for the Eastern District of New York on Friday. The plaintiffs said they weren’t after a quick fix and are looking more for permanent reform in the industry. With millions of people using some form of credit card everyday to buy just about any product imaginable, it’s easy to see why this is such a big issue. Many people don’t carry cash or checks much anymore and online retail businesses generally can’t accept those so no other option is left to them.
John Stith is a staff writer for Murdok covering technology and business.
