A Legal Baffle Over Debit-Card Fees - title should read 'A legal battle over debit-card fees' - small retailers hope to join antitrust lawsuit filed by large retailers over fees - Brief Article

Nation's Business, Oct, 1998 by Dennis Blank

Small retailers may become eligible to join a class-action antitrust lawsuit aimed at breaking what critics call the near-monopoly grip held by Visa International and MasterCard International on debit-card transactions. Some merchants complain that they are forced by Visa and MasterCard to accept those companies' debit cards even though their transaction fees are much higher than fees charged by many other firms that issue debit cards.

A U.S. District Court judge in Brooklyn, N.Y., is expected to rule this winter on whether small retailers can unite with the national retailers that filed the antitrust suit two years ago. Lloyd Constantine, lead counsel for the plaintiffs, says the discovery phase of the suit is nearing an end. He expects the case to go to trial late next year. This is a cutting-edge case," says Constantine, a partner with Constantine and Associates in New York City "It has a huge impact on consumers and virtually everyone who shops." The plaintiffs, including Wal-Mart Stores, Inc.; Circuit City Stores, Inc.; Sears, Roebuck and Co.; and Safeway Inc., argue that Visa and MasterCard illegally force merchants who accept the two companies' credit cards to accept their debit cards. Paul Allen, an attorney for Visa, acknowledges that the company's "universal acceptance policy" requires merchants to accept all financial programs offered by Visa. But he rejects the argument that Visa has created a monopoly through "an illegal tying arrangement." A spokesman for MasterCard says it is company policy not to comment on pending legal cases. Unlike credit cards, debit cards subtract funds directly from a user's bank account. More than 45 million Americans carry debit cards, and Visa and MasterCard account for roughly two-thirds of debit-card transactions, says Constantine. The giant credit-card companies' fees charged to merchants for debit-card transactions are the same as or nearly the same as the fees for credit-card purchases even though the risks and costs associated with a credit card are much higher. Visa charges merchants-except grocery stores--1.04 percent of the amount of a debit-card transaction plus 6 cents, says a company spokesman. Grocery stores are charged a flat 36 cents for a debit-card transaction. Visa charges 1.31 percent for a credit-card transaction. MasterCard charges the same percentage for both debit- and credit-card charges. In most instances, retailers pay 1.38 percent for MasterCard transactions, says Constantine. By contrast, competitors such as Honor, Interlink, Pulse, Star, Mac, and Nyce charge merchants 8 to 12 cents to process a debit-card transaction over their electronic networks says Constantine. A legal victory for the retailers could cost Visa and MasterCard billions of dollars in overcharges and damages for actions dating back to 1992, according to Constantine.