Credit Card Companies Accused of Antitrust Breach

Mastercard and Visa collect billions of dollars in fees each year from the nation's retailers. Merchants have long complained about the way those fees are determined. A lawsuit accusing Mastercard and Visa of antitrust violations is expected to go to trial in Brooklyn soon.

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MasterCard and Visa rake in billions in fees from the nations retailers. Merchants have long complained about the way those fees are determined. Now the dispute is heating up again.

A lawsuit accusing MasterCard and Visa of antitrust violations is expected to go to trial in Brooklyn. NPR's Jim Zarroli reports.

Unidentified Woman (Cashier): Okay, we're using green points today?

JIM ZARROLI reporting:

Twenty years ago, if you wanted to buy groceries at the Super Foodtown in Red Bank, New Jersey, you had two choices. You could pay in cash, or you could write a check. These days, 60 percent of the customers use credit or debit cards.

Unidentified Woman: The total is $89.57.

ZARROLI: Today, the customers include Osa Shoning(ph), who says she almost always uses her credit car when she comes here.

Ms. OSA SHONING (Shopper): Because it's simple and I don't always have the cash on me.

ZARROLI: Customers like Shoning don't have to pay anything extra when they use their credit or debit cards. Each time a customer uses a credit card, the merchant has to pay a fee equal to more than two percent of the transaction cost, on average.

In the grocery store, a business where profit margins are tiny, that can take a big bite out of revenues.

But John Derkin(ph), who works for the co-op that this store belongs to, says merchants have no choice but to pay the fees.

Mr. JOHN DERKIN (Grocery Co-Op): If we were to say we're not accepting that card, we would be at a competitive disadvantage, because our competitors accept the cards. We have to accept them if we're going to continue to do business.

ZARROLI: But now, a large group of retailers is preparing to fight the fees in court. Their suit involves the so-called interchange fees that make up the bulk of the fees that the merchants pay.

Joe Azalina, Sr.(ph), president of the company that owns this store, is one of the plaintiffs in the suit. He says the way interchange fees are determined amounts to price fixing.

Mr. JOE AZALINA (Plaintiff in Antitrust Suit): They meet in secret and decide what the fee is going to be. We can't negotiate the fee with them. The aim of the suit is to open the books and get the fees down.

ZARROLI: Credit card companies deny the price fixing charges. MasterCard's Josh Perez(ph) points out that interchange fees go primarily to the cardholder's bank. But he says the fees are actually set by MasterCard's board, which is largely independent of the banks.

Perez also points out that the system provides all sorts of benefits for merchants. They're guaranteed payment with a minimum of paperwork, and they don't have to worry about the credit worthiness of customers.

Mr. JOSH PEREZ (MasterCard): To make all of those things connect seamlessly and to really enable commerce on a global basis in such a simple easy way, you know, we've built in many systems that work extremely well. And merchants know what they pay and cardholders know what they pay, and everyone gets great value from the system.

ZARROLI: And Perez says that MasterCard's fees are still lower than other credit cards, when all the costs are taken into account.

David Robertson, publisher of the Nilson Report, a credit card newsletter, says this dispute is flaring up because of the explosion in the use of cards. At one time, Robertson says, merchants didn't mind accepting credit cards because they encouraged customers to go ahead and buy something they might not have the cash for.

Mr. DAVID ROBERTSON (The Nilson Report): Today we have a country in which most transactions are debit, and the vast majority of the credit transactions are not purchases that people are making that they couldn't afford to buy, but purchases that people are making because they want to get ten more frequent flyer miles.

ZARROLI: As a result, many people now use cards routinely, at the dry cleaners, at movie theaters, even fast food restaurants.

John Derkin, of the Foodtown co-op, says this costs merchants a lot of money without really bringing in new business.

Mr. DERKIN: What happens is, we pay for their rewards, and then the customer pays for it in the hidden costs or charges that are passed on to them in the price of goods.

ZARROLI: The credit card companies and merchants have clashed before. Visa and MasterCard were sued by a group of major retailers over a rule requiring them to accept both debit and credit cards. The suit was settled in 2003. Since then, MasterCard has become a publicly traded company, which means it has extra incentive to put legal disputes like this one behind it.

But merchants also have good reason to try to end this dispute. As credit cards have become more ingrained in the U.S. economy, most retailers know they have to learn to live with them, even if they're unhappy about the costs.

Jim Zarroli, NPR News.

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