Credit Card Antitrust Settlement – What It Means If You Use Plastic to Pay

Written by: John Landers

Swipe fee refer to the interchange charges assessed for each credit card transaction. According to the Wall Street Journal, swipe fees rate number three behind rent and payroll as the highest business expense. Beginning in 2005 retailers that include Walgreens, Safeway and Kroger started filing lawsuits against Visa, MasterCard and other banks.

Retailers filed litigation arguing that a pricing system for credit card swipe fees was non-existent. Therefore, credit card companies and banks, which charged an average transaction fee of 1.5 to 3% percent, charged retailers to pay more than necessary for making credit card service available to customers.

Recently, credit cards giants Visa and MasterCard, some big banks and retailers reached a settlement.

Filed Antitrust Charges against Credit Cards Companies

According to the class action lawsuit filed by seven million U.S. retailers, Visa, MasterCard, Bank of America and JP Morgan Chase engaged in price fixing swipe fees and overcharged merchants billions of dollars in transaction charges. Mallory Duncan, a spokesperson for the US National Retail Federation, said swipe fees for debit and credit cards have increased to $50 billion– more than three times swipe fees generated a decade ago.

Originally scheduled to go to trial in September 2012, the litigants settled the lawsuit with the banks paying $7.25, billion in payment fees and in penalties to the retailers.

More importantly, credit card companies and banks eliminated the rule that prohibits retailers from assessing a surcharge on consumers. If you pay with plastic, retailers can now charge you a surcharge, which lessens their costs for swipe charges.

According to Anisha Sekar, the vice president of NerdWallet, an online reviewer of financial products, consumers who use methods other than cash, “when you shop you’ll be paying for that service.” “Everyone who uses cash has been subsidizing credit-card holders for years,” said Sekar.

Costs to Consumers and Small Retailers

Duncan said Americans pay more than $427 million a year in swipe fees. Some analysts do not believe retailers will jump at the chance to assess consumers a surcharge. Storeowners who single out credit card users for a “special charge” may face consumer backlash in tight economic environments.

Other analyst view the  situation as going the way of the service station, which have a two-tier system for customers paying with cash and those using by credit cards. Texas, California, New York and seven other states have laws on the books that outlaw surcharges. These states have 42% percent of the current volume that make up transaction surcharges.

A specialty storeowner in South L.A., Efrain Lopez says most customers “go away” when he advises them of a $1 transaction fee. Anisha Sekar believes that consumers will make adjustments by not paying for a service for which they “no longer need,” much like passengers who avoid airline baggage charges by not checking luggage.

In addition, Sekar says the timing presents an opportunity for retailers to use their collective strength to bargain with credit card companies and banks for lower transaction fees and pass the savings on to consumers.

WalMart has called on fellow retailers to reject the settlement offer because it does not keep credit card companies from raising transaction fees and the proposed settlement requires retailers to forfeit their right to take legal action against the banks.

The settlement agreement does not apply to debit card transactions.


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