Retailers Say Visa and MasterCard Violate Antitrust Laws

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Antitrust attorney W. Stephen Cannon, representing the Merchants Payments Coalition, a group of about 20 retail trade associations, in written testimony before the Senate Judiciary Committee last week accused Visa and MasterCard of violating federal antitrust laws through their practice of setting the interchange rates charged by banks to complete consumer transactions. The interchange fee, now close to 1.74 percent, is charged every time a consumer uses a credit or debit card to pay for a purchase.

Visa and MasterCard collected $26.3 billion in fees in 2004 and that number should be higher for 2005 and 2006, with interchange rates rising in the U.S. and credit card use for gasoline purchases increasing, the National Association of Convenience Stores (NACS) says.

Senator Arlen Specter, (R-PA) Chairman of the Judiciary Committee, said that there are “complaints by many retailers, especially grocers, that there is collusion on the setting of the rates and that they are excessive,” according to Bloomberg News.

Visa USA Vice President Rhonda Bents countered in prepared testimony that some big retailers “are currently lobbying Congress seeking to undermine the marketplace.” The dispute over fees “should be resolved at the negotiating table” she said, and not through antitrust legislation, Bloomberg says.

Cannon argued the legal position of the merchant's association, saying that the banks that form the Visa and MasterCard networks engage in price fixing and in so doing operate as a cartel. Cannon also said that Visa and MasterCard's contracts require that the fees be built into the price of the merchandise, making it nearly impossible to disclose the fees to consumers who see other credit card fees on their bills.

“The average consumer has no idea that this fee is imposed every time they make a purchase,” Cannon said. “Interchange acts as a hidden sales tax on U.S. commerce, raising both merchant costs and ultimately the price of goods and services sold to consumers.”

Bill Douglass, CEO of Douglas Distributing Co. in Sherman, Texas, and Chairman of NACS, testified that “credit card interchange fees hurt my customers who, in the end pay for them, and hurt my business. . . . The rise in these fees in recent years had made them the third highest operating cost for my business and for my industry as a whole. Only payroll and rent cost more than these fees.”

“I cannot overstate how difficult this is for business and how rapidly the card companies have increased how much money they take on every gasoline purchase,” Douglass went on to say. “Between 2004 and 2005 the card companies' take from convenience store sales increased 145 percent more than the convenience stores' take. After expenses and taxes, they make more money on each sale than we do. In effect, I am working for the card companies.”

Kathy Miller, a grocery store owner from Elmore, Vermont, testified that the interchange fees represent a serious burden for small businesses operating close to their margins.

“I would like to ask you on your next ride home to look and see how many vacant store fronts there are in you small downtowns,” Miller wrote, according to the Burlington Free Press. “Just this last winter alone, four closed within a 50 mile radius of us. Some days I feel like I should just turn in my keys – but too many people count on us. . . . We are the hub of the community.”

Interchange rates in other industrialized nations average less than one percent – 0.7 percent in Britain, NACS says, and are either stable or declining. On June 30 the European Commission accused MasterCard of restricting competition between banks through its fee-setting procedures, Bloomberg News says.

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