Interchange Instigator: Meet the Antritrust Suit Plaintiff
The credit union industry has kept a close watch on the litigation involving credit card interchange, but few people know that the merchant who launched the lawsuit against Visa, MasterCard and six major banks is not a huge retailer.
In fact, the lead plaintiff in the largest proposed antitrust settlement in U.S. history is actually a small business owner.
Mitch Goldstone, president/CEO of ScanMyPhotos.com, an online photo service based in Irvine, Calif., filed the lawsuit in 2005 with his partner, Carl Berman.
Following the recent announcement that some retailers were displeased with U.S. District Court Judge John Gleeson's adjudicated settlement, Goldstone spoke with CU Times about his role in the lawsuit and his hopes for a resolution in the near future.
“The giant merchants are disgruntled because now small businesses, like ScanMyPhotos.com and millions of other retailers, have a level playing field and can join buying groups for equilibrium in balanced payment terms,” Goldstone said. “As an e-commerce photo digitizing business, like all online companies, we will be able to add a prompt to the transaction steering cardholders to save money and use a less costly payment choice. Consumers win with lower prices.”
If the proposed $7.25 billion settlement is finalized, merchants stand to receive a payment of about one-third of the total interchange fees paid last year, Goldstone said.
“If they paid $100,000, they will be receiving about $33,000,” he explained. “In addition, new technologies in electronic payments mean that competition will also keep in check MasterCard and Visa's once vast market power.”
When asked about his response to the recent appeal to the settlement, filed by the National Retail Federation and the Retail Industry Leaders Association, Goldstone said he considers it a marketing ploy by the trade groups.
“The giant merchant interchange litigation has been a calling card for several trade associations to respond to members’ questioning of ‘what have they done for them lately,’” he said. “With the settlement secured, this topic is off the table and a new marketing pitch is needed to maintain member interest. While the K Street, ivory tower Washington associations dissent, their members will be furious if their settlement checks are postponed.
“Many of those in defiance of the settlement ruling were in the same Brooklyn federal court room, multiple times, participated in conference calls and equally negotiated along with me to forge the structure for the best deal,” he added. “Together, we signed off on the settlement. As Judge Gleeson forewarned, if the case went to trial, merchants risked losing everything and even a victory could be delayed on appeals even longer than the Exxon Valdez settlement.”
Goldstone contends that those challenging the settlement have used misleading information and strong-arm tactics. “Even the judge chimed in to force them to stop using the false Internet sites and messages,” he added.
Goldstone said he launched his campaign against unfair interchange rates in 2005, after receiving a letter stating that his company would have to pay higher fees when customers used one of several premium Visa and MasterCard credit cards issued by the country's biggest banks.
“I tried unsuccessfully to reach out to MasterCard and Visa to request they also lower their fees,” he recalled. “Their disregard caused me to study the electronic payment industry and become an expert on interchange fees.”
As an entrepreneur, Goldstone said, he has worked over the years to keep prices down by using new technologies and efficiencies.
“When we started, five dollars was the amount charged to scan a single picture, but due to identifying new ways to digitize photographs, we lowered the price, now to just pennies a scan,” he explained. “The same type of technology should have led to lower merchant interchange fees, as the electronic payment network shifted from manual carbon copy imprinted charge receipts to instant, lightning-fast payments. However, some rates actually went up hundreds of percent.”
Goldstone started blogging about interchange fees in hopes of educating other merchants and consumers. Over the years, he has posted more than 10,000 news updates and commentaries on social media, he said.
“Prior to the case, people thought ‘interchange’ was a road, rather than a multi-billion hidden fee that redistributed upwards of 2% of every credit card transaction to the member banks and card associations,” he said.
To file the suit, Goldstone hired the legal team that won the giant tobacco settlement.
After almost a decade of battling, Goldstone said he would do it all over again, if necessary.
“From day one, I recognized the monumental scope of the litigation. As more attention spotlighted the case, it snowballed quickly and occupied the bulk of my time, but it was something I felt needed to be done.”