Congress should take up issue of credit card reform

Seven years ago we became plaintiffs in an antitrust class action against Visa, MasterCard, and the big banks that owned and controlled them, to challenge their anticompetitive credit card pricing and card acceptance practices. That legal battle is finally drawing to a close. While future battles will certainly follow, the proposed settlement takes a big step in the right direction toward reducing card costs and lowering consumer prices, so merchants and American families alike should support it.

The lawsuits are being settled in the largest antitrust settlement ever, including a cash payout of $7.25 billion – more than three times greater than any previous antitrust cash settlement. There’s no way Visa, MasterCard, and the banks would agree to pay that much if they haven’t been doing something very wrong.

More importantly, however, is the repeal of remaining anticompetitive rules long imposed by Visa and MasterCard. Elimination of these rules will allow merchants, if they choose, to “surcharge” customers who use high cost credit cards. Credit card interchange can cost the merchant up to four percent of the total cost of a sale.

In order to remain competitive, merchants have no choice but to pass higher card costs (exorbitant swipe fees) on to our customers, which means all of our customers pay higher prices, not just those using high cost cards. Customers are already squeezed by higher prices so we don’t want to surcharge, but we do know that the ability to surcharge, which disincentives card use, will reduce the costs of cards to merchants. As our credit card costs come down we can pass those savings along to our customers.

Another important reform in the settlement is the ability for small businesses to organize “buying groups” to negotiate with Visa, MasterCard or banks for lower card costs. The settlement requires Visa and MasterCard to negotiate “in good faith,” and the court promises to enforce this mandate.

All this positive news is not enough for some critics of the settlement, who want a cap on interchange fees going forward. That would be ideal, but it’s not realistic. Federal judges don’t have the power to set the prices companies may charge

In the U.S. either the parties negotiate in good faith and the market works, or if it doesn’t, reform can come through Congressional action, as it did last year in the case of the Durbin Amendment, which set debit card reform, including lower interchange rates, in motion. We urge Congress to take up further credit card reforms and permanently lower credit card interchange rates, and we are ready to help in that effort any way we can.

The settlement would not grant Visa and MasterCard “perpetual immunity” from antitrust claims. New antitrust complaints would not be barred. Visa and MasterCard could not take steps to kill off potential new competitors, such as mobile payments technology. The law is clear and would prevent Visa and MasterCard from successfully using the release as a shield against antitrust claims based on new or different conduct.

And what’s the alternative to settlement? Years more of litigation, which would come with no guarantee of success. We’d actually risk losing the considerable gains we’ve achieved in this settlement, and delay by years progress on implementing the reforms in this agreement. The risk-reward assessment is a no-brainer in our view – embracing and approving the settlement is the only sensible option.

It is up to our fellow merchants to take advantage of the new opportunities promised in this settlement, and to effectively use our new competitive tools to lower the cost of payment cards.

Original posting: The Hill: Congress Blog