Feds, states reach agreements with major credit card companies

By Keith Loria | Oct 5, 2010


WASHINGTON (Legal Newsline) - The federal government and seven states sued three major credit card companies on Monday, and two of the defendants have already entered into settlements.

American Express, Visa and MasterCard allegedly impose restraints on merchants that keep information about cheaper payment methods such as cash or credit cards that offer lower transaction fees to businesses from their customers. Visa and MasterCard have agreed to change this practice, and the lawsuit against American Express will continue.

The companies also allegedly imposed fees on merchants every time a consumer uses their credit or charge cards. The amount of fees has increased over the past few years, even though the transactions' administrative costs have decreased, the plaintiffs argued.

Merchants are not allowed to inform customers of the cost to the merchant flowing from the different payment methods, and many consumers are unaware of these cost burdens, the plaintiffs said.

"We want to put more money in consumers' pockets, and by eliminating credit card companies' anticompetitive rules, we will accomplish that," U.S. Attorney General Eric Holder said.

Last year, American Express, Visa and MasterCard, which control 94 percent of all credit card transaction in the U.S., collected more than $35 billion in fees from merchants, significantly draining businesses that are forced to pass on these costs through higher retail prices, the plaintiffs say.

The feds teamed with the states of Connecticut, Iowa, Texas, Maryland, Michigan, Missouri and Ohio.

Connecticut Attorney General Richard Blumenthal, a candidate for U.S. Senate, said he hopes that merchants will be allowed to advise customers what payment options may be cheaper without requiring consumers to use such payment methods.

If consumers are inclined to use cheaper payment options, Blumenthal says, the costs of doing business will decrease and any savings could be passed on to them.

According to a DOJ news release, the proposed settlement requires MasterCard and Visa to allow their merchants to:

-Offer consumers an immediate discount or rebate or a free or discounted product or service for using a particular credit card network, low-cost card within that network or other form of payment;

-Express a preference for the use of a particular credit card network, low-cost card within that network or other form of payment;

-Promote a particular credit card network, low-cost card within that network or other form of payment through posted information or other communications to consumers; and

-Communicate to consumers the cost incurred by the merchant when a consumer uses a particular credit card network, type of card within that network, or other form of payment.

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