Swipe fee settlement gives retailers more voice

The sign at the ice cream shop in Lincoln reads, “Due to the high cost of credit card processing, we ask that you pay cash under $10. However, we will refuse no one.”

A customer handed a credit card to the owner of a shop in Portland to purchase a greeting card. The owner gave the customer the card for free, saying the processing charge he would pay wouldn’t make the sale worthwhile.

Every time a customer uses a credit card, the card issuer charges the merchant a fee, called an interchange or swipe fee, usually between 2 and 3 percent of the sale amount. In 2005, retailers charged Visa and Mastercard with conspiring to fix swipe fees. The National Retail Federation, which was not a party to the lawsuit, estimates that credit card swipe fees total around $30 billion a year.

Last month the two card giants agreed to a settlement, which still has to be approved by a judge. It provides $6.05 billion in cash to the retailers and an eight-month rollback of one-tenth of a percent in swipe fees. Also provided is a deferred payment of about $1.2 billion, which will be determined after retailers who want to opt out of the settlement have done so. It also requires Mastercard and Visa to allow retailers to negotiate swipe fees collectively.

K. Craig Wildfang, co-lead counsel for the plaintiffs in the lawsuit, said the settlement should “help shift the competitive balance from one formerly dominated by the banks, which controlled the card networks, to the side of merchants and consumers.” Wildfang predicts the settlement will help cut merchants’ costs in the long run.

The National Retail Federation is less enthusiastic. Senior vice president and general counsel Mallory Duncan called the $6 billion significant but temporary. He said rule changes are needed to make the fee system transparent and competitive. “The test will be whether the injunctive relief is meaningful. Unless it is, the card market will stay broken,” he said.

The National Association for Convenience and Fuel Retailing rejects the settlement, saying it plays into the hands of Mastercard and Visa. After the eight-month fee reduction, NACS President Tom Robinson said, “Visa and MasterCard will continue to separately price-fix fees for thousands of their bank members. This means that banks won’t have to set their own prices and compete like other businesses throughout the U.S. economy.”

The biggest unknown in the settlement is a provision that merchants can add their own “checkout fee.” The surcharge on consumers basically would counteract the swipe fees collected by the card issuers. It won’t be an issue here, since Maine is among 10 states whose laws forbid such surcharges.

Curtis Picard, executive director of Maine Merchants Association, said this “huge, epic battle” is bound to continue. Picard said retailers feel powerless by the 1,000-page contracts card companies insist they sign, the terms of which can change at any time.

“This is the only area I can think of where [business] costs continue to increase, despite economies of scale,” Picard said.

Virtually everyone we spoke with doubted Maine consumers will see alternatives to checkout surcharges, such as more discounts for paying cash, as retailers wait for the next shoe to drop. Most agreed that consumers need to rethink their methods of payment in terms of real costs: both to merchants and to buyers, who ultimately pay for “reward points” and other shiny things they may have thought were “free.”

Halcyon Blake, owner of Halcyon Yarn in Bath, says comprehensive legislation will be needed after the eight-month fee rollback is over. When that period is up, Blake says, “All bets are off, and the big banks [and card companies] can go back to their old practices.”

Consumer Forum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s membership-funded, nonprofit consumer organization. Individual and business memberships are available at modest rates. For assistance with consumer-related issues, including consumer fraud and identity theft, or for information, write Consumer Forum, P.O. Box 486, Brewer 04412, visit necontact.wordpress.com or email contacexdir@live.com.