Retail Merchants Groups Sue Credit Card Companies

Four merchant associations have filed a class action suit against Visa USA, MasterCard Inc. and major US banks including Bank of America Corp., Citigroup Inc., and JPMorgan Chase & Co., alleging collusion in setting interchange fees, according to a report from Reuters. Merchants pay an interchange fee on every transaction, part of which goes to the merchant’s bank and part to the consumer’s credit card company.


Advertisement


Click HereRegister today for the "Catapulting Finance to Boost Corporate Value" Webcast to be held on Thursday, October 13th, at 2 p.m. ET. Listen to a customer panel discuss how using Microsoft® FRx® and Microsoft Forecaster for their financial reporting, budgeting and planning have propelled their financial management and boosted their corporate value.


FRx Software Home Product Information
Training & Consulting Product Demo
FRx Express Customer Testimonial Video



The plaintiffs in the suit, who represent over 200,000 retailers, are the National Association of Convenience Stores, the National Association of Chain Drug Stores, the National Community Pharmacists Association and the National Cooperative Grocers Association, Reuters reports.

The merchants’ groups state that interchange fees are meant to cover the cost of processing a transaction, and the risk that the credit won’t be repaid, the Wall Street Journal reports. Yet they claim that fraud costs and processing costs are steadily decreasing, while the US interchange rate continues to increase.

Because the interchange fee is a percentage of the purchase price, and a fee is charged for every transaction, major credit card companies are benefiting from the rise in gasoline prices, the Washington Post reports. Fees paid by gas stations to credit card companies have risen by 64 percent as the price of gas increases.

“It’s unexpected revenue, because people are just doing what they were always doing, said David Robertson, publisher of the Nilson Report, a credit card industry newsletter. “There’s no behavioral change. It’s just more money, he told the Post. Typically a retailer’s bank gets 25 percent of the fee and the credit card companies get 75 percent Robertson said.

“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, chief executive of the National Association of Convenience Stores, according to the Wall Street Journal. John Rector, general counsel for the National Community Pharmacists Association, said the lawsuit seeks to bring about “long-term reform of the credit card interchange fee system,” according to the Associated Press.

Visa said that it was confident that the interchange system was fair, the Wall Street Journal reports. MasterCard said that the lawsuit lacks merit and called it “yet another example of merchants wanting the benefits of accepting payment cards without having to pay for the value of the services they receive,” the Reuters report says. Banks named in the suit either declined to comment or were unavailable.

The National Association of Convenience Stores says, according to the Washington Post, that since Hurricane Katrina, gasoline purchases paid for by credit cards have risen from 70 percent to 80 percent. Cards that offer rewards are used most often for these purchases. In a recent review of rewards programs offered by American Express, CitiBank MBNA and Visa SmartMoney.com found that no single reward program was outstanding. Consumers should select cards depending on how they planned to use the rewards, SmartMoney advised.

You may like these other stories...

The Public Company Accounting Oversight Board (PCAOB) is interested in what you have to say about auditing accounting estimates and fair value measurements.The US audit regulator on Tuesday issued for public comment a staff...
Hertz withdraws full-year forecast, cites accounting review, challengesRental car company Hertz Global Holdings Inc. said on Tuesday it is withdrawing its full-year financial forecast and expects 2014 results to be “...
Treasury prepares options to address tax inversionsDamian Paletta of the Wall Street Journal reported on Monday that US Treasury Department officials are assembling a list of administrative options for Treasury Secretary...

Already a member? log in here.

Upcoming CPE Webinars

Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.
Aug 26
This webcast will include discussions of recently issued, commonly-applicable Accounting Standards Updates for non-public, non-governmental entities.
Aug 28
Excel spreadsheets are often akin to the American Wild West, where users can input anything they want into any worksheet cell. Excel's Data Validation feature allows you to restrict user inputs to selected choices, but there are many nuances to the feature that often trip users up.
Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.