MINNEAPOLIS – A coalition of smaller and medium sized businesseshas filed suit against Visa and MasterCard seeking relief from whatthey claim are too high interchange fees as well as a method forletting smaller businesses have more of a say in settinginterchange rates. MasterCard and Visa generally use a schedule offees that offers the lowest rates to merchants with the highestvolumes and some, like Wal-Mart, negotiate their rates. Othermerchants have to accept the rates that Visa and MasterCard set ifthey want to be able to accept payments with the cards. “Merchantshave little or no ability to negotiate with Visa and MasterCard forlower interchange fees, and these fees are a `hidden tax' thatraise prices paid by consumers for almost every product they buy,”says K. Craig Wildfang, a partner at Robins, Kaplan, Miller &Ciresi L.L.P., who represents the plaintiffs. “Visa and MasterCardhave previously been found to have `market power' in the relevantmarkets, so Visa, MasterCard and the banks now have the burden ofproving that they have set the interchange fees at the correctcompetitive level,” he added. Wildfang acknowledged that he was oneof the attorneys in the previous Visa and MasterCard interchangecases but denied Visa and MasterCard's charges that the firm wascreating the suit in an attempt to get business. What Are TheStakes? As with the previous debit card interchange suit, there aretens of millions of dollars at stake for Visa and MasterCard aswell as the banks and credit unions which issue the cards. ButWildfang made it clear that monetary damages are not as importantto the plaintiffs as a definite change to the way interchange ishandled. “It's really not appropriate to comment on what the end ofthe legal process might be in the very first step,” Wildfang said,but he went on to explain some different approaches that theplaintiffs might accept. For example, he pointed out, there is noreason that interchange has to necessarily be the same across theindustry or that different issuers might not be able to offermerchants different rates of interchange in a manner similar to ATMnetworks around the country. Competing credit card networks thataccepted both Visa and MasterCard could offer different platformsof services at different prices to merchants. Or, conversely,merchants could band together into organizations that couldnegotiate their best interchange deals with different interchangenetworks. “Clearly, the system as it's currently structured isbroken,” Wildfang said. “And we need to come up with anotherapproach that is more equitable.” Not surprisingly, neither Visanor MasterCard quite see it that way: “This current effort toundermine the interchange system must be understood for what it is:a clear attempt by merchants to receive all the value of electronicpayments, while shifting their normal costs of doing business ontoconsumers,” said Paul Cohen, a vice president with the number onecard brand. “We will fight to protect the value our cardholdersreceive from their Visa cards, and oppose merchant efforts to shiftcosts onto consumers.” Cohen pointed out that merchants have evensought to be able to impose fees on consumers who use plastic, eventhough use of cards lowers costs for all by eliminating the troubleand costs of cash and checks. “Visa operates in a highlycompetitive marketplace, which drives enormous benefits toconsumers,” Cohen added. “Our rates are determined in the openmarketplace, and we believe that the marketplace is the bestarbitrator of price – not a courthouse. Court-mandated pricecontrols open the door to higher prices, merchant surcharging, andfewer benefits for consumers.” MasterCard recognizes that merchantswant lower costs for all aspects of their business, and has beenworking closely with the merchant community to find solutions thatsatisfy them while maintaining the benefits consumers receive fromhaving the enormous choice of payment options available today,MasterCard's general counsel Noah Hanft explained. “The lawsuitfiled on behalf of a number of small merchants is misguided, andMasterCard looks forward to defending interchange, which isnecessary for the operation of a four-party system and has beenfound lawful, efficient, and pro-competitive,” he added. ResolutionStill Far Off In any case, it seems unlikely that the case will beresolved any time soon. Since some of the card issuers that themerchants have sued are overseas, and since there is usually a longprocess for letting plaintiffs respond to the suit, Wildfangestimated that it would be 60 days before anything in the case wentbefore a judge. Neither Visa nor MasterCard commented on thetimeline for the suit. -

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