Visa, MasterCard and several major banks agreed to pay $6 billion to US retailers to settle a long-running price-fixing lawsuit that alleged card issuers conspired to overcharge retailers by billions of dollars in credit-card transaction fees.According to lawyers for 7 million US retailers who filed the suit in 2005, the agreement reached yesterday is the largest-ever settlement in a private antitrust case in the US. The plaintiffs include grocery chains Kroger, Walgreen Co and Safeway, the Rite Aid drugstore chain and the TV and online shopping network QVC among others, while the defendants are most of the major banks including JPMorgan Chase, Bank of America and Citibank, and the two credit card issuers. The retailers had alleged that Visa, MasterCard and all the major banks conspired to fix the fees the retailers paid to accept credit and debit cards, which depend on the type of store and the type of card issues, average to about 2 per cent of the purchase price. Retailers pay Visa and MasterCard for each customer that uses the credit or debit cards known as "swipe" or "interchange" fees for their purchases, and the fees, which are set by card processing networks, are split with the banks that issue the cards. Credit card companies have long argued that customers tend to spend more while using the credit or the debit card compared to cash or cheques. Retailers wanted to pass on the fees to the customers, but both Visa and MasterCard have always rejected this plan, although retailers were giving discount to cash paying customers. According to the largest US retail industry advocacy group National Retail Federation (NRF), swipe fees costs stores around $30 billion per year. Visa and MasterCard together accounted for more than 80 per cent of all US credit and debit card transactions by volume in 2011, according to data from a report from California trade publication Nilson. But interestingly, credit card issuers also charge credit card users a fee on credit purchases at the end of the billing cycle, and do not reveal how much they charge retailers and the credit card customers. In the negotiated settlement, Visa agreed to pay $4.03 billion to settle the lawsuit, while MasterCard and banks that issue cards will pay $2.02 billion. The two card companies have also agreed to cut their "swipe" fees for eight months, which would give retailers another $1.2 billion in relief. Visa and MasterCard agreed to allow retailers to pass the "swipe" fees to consumers, which would also nearly eliminate discounts given by retailers to cash paying customers, although this practice is unlikely to be discontinued, according to analysts. Mallory Duncan, general counsel for NRF told AFP news that there is no transparency in the settlement since it would be nearly impossible for retailers to fix a fee on credit transactions if they do not know how much they're being charged to accept the card. "The card companies hide the price of their cards from both merchants and consumers because they don't want either party to know how much they're being charged to use their card," he said. But analysts say that retailers have gained from the settlement at the cost of credit card users. Linda Sherry, a spokeswoman for the advocacy group Consumer Action said in a statement, "It's a terrible thing for consumers.'' It will make it very hard for consumers to know whether merchants are simply passing along their credit-card costs or whether they're using this as a new profit centre." But although both the card companies and banks have agreed to pay this huge sum and agreed to the terms of the settlement, they have eventually ended up as the winner as now there will be friction between the retailer and the consumer and eventually the terms may not be implemented, according to a few analysts. Source: Domain-B
