our trade groups collectively representing 130,000 U.S. merchants filed an antitrust class action lawsuit against Visa U.S.A., MasterCard Inc. and member banks. Their complaint is that the card Associations along with their card issuing banks engage in price fixing and other practices that stifle competition.

The allegation has become a familiar one. Dozens of other interchange-related lawsuits against Visa and MasterCard have also been filed; a September multidistrict litigation (MDL) hearing will determine how to organize them.

The plaintiffs in the newest suit, led by the National Association of Convenience Stores (NACS), also include the National Association of Chain Drug Stores (NACDS), the National Community Pharmacists Association (NCPA) and the National Cooperative Grocers Association (NCGA).

Combined, the four groups are representing 70,000 convenience stores, 60,000 independent and chain pharmacies, and 120 co-op grocery stores that operate in the United States and accept Visa- and MasterCard-branded cards as a form of payment.

"The credit card interchange system serves as a hidden tax, both on merchants and consumers, and raises the costs of all products regardless of the form of tender," said NACS Chief Executive Officer Hank Armour. "These ... fees have rapidly increased over the past several years despite efforts by individual convenience stores to control these costs or make the competitive market work," he said.

The trade groups' claim was filed Sept. 23, 2005 in the U.S. District Court for the Eastern District of New York.

Card Associations Respond

In response to this lawsuit, Visa and MasterCard both released statements that maintain the legality of interchange and its necessity to the operation of their networks.

"It is disappointing that plaintiffs' attorneys continue to seek ways to undermine a system that creates enormous value for merchants, through increased sales, guaranteed payment, and faster, easier transactions," Visa Vice President Paul Cohen said.

MasterCard said merchants pay a small price for interchange in relation to "the phenomenal value they get from accepting MasterCard cards" and the lawsuit "is yet another example of merchants wanting the benefits of accepting payment cards without having to pay for the value of the services they receive."

Member banks of Visa and MasterCard, including Bank of America Corp., Citigroup Inc., Bank One, JPMorgan Chase & Co., Fleet Bank, Capital One and many others are also defendants in the suit.

Citigroup, the only bank willing to comment, said in a statement "Citigroup denies that it is engaged in any unlawful conduct as alleged in the complaint and will vigorously defend the lawsuit."

Visa and MasterCard are equally confident in their ability to defend interchange. Both cited the recently dismissed Northern California case of Kendall v. Visa U.S.A. et al. in which a small merchant charged Visa, MasterCard and member banks with violating antitrust rules by setting merchant discount and interchange fees.

In this case the court ruled that merchants, as indirect recipients of interchange, do not have standing under antitrust laws to bring an antitrust claim.

The plaintiffs say this case is insignificant and maintain that the size and scope of the current challenge, NACS et al., add weight and steam to the merchant cause and threaten the established rules. According to NACS, as a class action lawsuit it represents "millions of card-accepting retailers in the United States."

Many Lawsuits, Similar Complaints

A Sept. 26 NACS news article reported that more than 30 interchange-related cases have been filed against Visa, MasterCard and member banks. These cases, including the most recent, will be subject to an MDL hearing on Sept. 29 in Asheville, N.C.

Based on arguments from plaintiffs and defendants, the MDL will determine whether and how to consolidate the cases and where they will be heard.

The law firm Robins, Kaplan, Miller & Ciresi LLP is representing both NACS et al. and 30 Minute Photo et al., a suit filed by a number of merchants in June that also alleges antitrust violations (see "Merchants Bring Interchange Lawsuit," The Green Sheet, July 11, 2005, issue 05:07:01. )

Craig Wildfang, counsel for both sets of plaintiffs, feels confident on the merchants' behalf. "I think that the courts will take these concerns seriously, especially with having the strength of the trade associations," he said. The ultimate merchant goal is "a market with reduced prices through competition, not the collusive action [of financial institutions]." He explained what will most likely happen at the MDL. "There are three types of cases that will be examined in Asheville: class-action interchange suits representing merchants around the country, private interchange suits and cases dealing only with specific rules such as the no-surcharge rule."

He said it is likely that all cases will be sent to a single judge and that the cases will most likely remain separate, but one judge will oversee the grouping.

Wildfang also expects that a similar lawsuit, filed in July by a group of major supermarket and drugstore chains and led by The Kroger Co., corporate parent of Ralph's, will also be combined with the broad interchange class-action suits
(see "Retailers File Another Interchange Lawsuit," The Green Sheet, Aug. 8, 2005, issue 05:08:01).

The multibrand supermarket chain could not be reached for comment.