A group of supermarket and drugstore chains has sued Visa International and its Visa USA unit, accusing them of setting rules that limit competition and keep retailers from negotiating lower transaction rates.
In the lawsuit, filed July 14 in U.S. District Court for the Southern District of New York, the retailers contended the credit card association’s restrictions allowed it to charge fees that were “artificially inflated.”
Visa abuses its market position to boost its revenue, the retailers said, adding that Visa improperly bundles its credit card products and network services. The stakes are significant because consumers are increasing their reliance on cards, even on small purchases.
The retailers cited the “Honor-All-Cards” rule, which requires merchants to accept all types of Visa cards, as an example of a rule that allows Visa to inflate prices. Visa charges higher rates to retailers that decline some Visa products, Reuters reports. Visa said the lawsuit was similar to class-action suit recently filed by a group of smaller retailers, alleging that Visa, rival MasterCard and some banks conspired to keep rates high.
“It appears this is another in a series of attempts by some merchants to receive all the value of electronic payments, while shifting their normal costs of doing business onto consumers,” spokesman Paul Cohen reportedly said in a statement Friday.
In June a group of small businesses filed a similar against Visa. (view previous story)
Plaintiffs in the new suit against Visa include grocers Albertsons Inc., Safeway Inc., and Ahold USA Inc., a unit of Netherlands-based Ahold NV, as well as drugstores Walgreen Co., Jean Coutu Group Inc.’s Eckerd Corp., and Maxi Drug Inc.
The retailers are seeking an injunction and triple damages from Jan. 1, 2004, to the present, Reuters reports. The 31-page lawsuit does not name Visa’s main rival, MasterCard International, or Visa’s card-issuing banks.
The lawsuit accuses Visa of unlawfully setting interchange fees charged to merchants each time a customer uses a Visa credit card for purchases and imposing rules that prevent them from negotiating lower fees, Reuters reports.
Retail merchants pay interchange fees to issuing banks to receive payments for transactions involving the banks’ cards.
Kroger expects to pay about $350 million in interchange fees in 2005, up more than 215 percent from five years ago. During that time, Visa has raised the rates it charges Kroger 11 times, the retailer reportedly added.
The lawsuit said that, freed of Visa’s restrictions, retailers could negotiate with individual banks and decide whether to accept certain cards, or tack on a surcharge for accepting some cards.
Visa said its rates are set by “a highly competitive marketplace” adding that surcharges on credit card payments are not legal in some states, Reuters reports.
Interchange rates have been a point of contention between retailers and the credit card companies for years. In 2003, Visa agreed to pay about $2 billion and MasterCard about $1 billion to settle a suit by retailers that claimed they were forced to accept higher-cost, signature-verified debit cards.