Astrodome, September 2005: Within two minutes of AFP photographer Stanley Honda electronically publishing a photo of Katrina victim Latesha Vinette holding up her Red Cross debit card, Ms. Vinette was paged by the management of Reliant stadium to receive a call from MasterCard asking about cash advances totally $65,237, the attempted purchase of a Ferrari automobile using her card #, along with hundreds of purchases from eBay, including, ironically, camping gear. "I don't know what I was thinking" said AFP photographer Honda, who failed to obscure any of the card's digits, or expiration date in his photo. I guess I could have just had her put her thumb over the first four digits." Ms. Vinette's balance reportedly dropped from $2000 to .45 cents in less than three minutes. Photo Credit: STAN HONDA/AFP/Getty Images
Fraud is not the only problem with the plastic money vehicles we use in our day to day transactions. According to a class-action lawsuit being pursued by the National Association of Convenience Stores, the National Grocers Association, the National Restaurant Association, the National Association of Travel Plazas and Truckstops, and other retail associations allege Visa, MasterCard and the banks engage in collusive practices to fix credit card interchange fees. The lawsuit has now been amended to include the interchange fees banks use for Debit cards.
Excerpts from the National Association of Convenience Stores News & Media Center -
Antitrust, Class-Action Lawsuit Against Visa, MasterCard and Major U.S. Banks Amended to Include Debit Cards
NACS News & Media Center - May 1, 2006
ALEXANDRIA, Va. – An amended consolidated complaint against Visa, MasterCard and several major banks has been filed by a broad range of merchant groups, including NACS, in the Eastern District of New York.
The consolidated complaint, filed April 24, updates an earlier complaint filed in September 2005 by NACS and other groups that alleged Visa, MasterCard and the banks engage in collusive practices to fix credit card interchange fees. The complaint updates the earlier complaint to include debit cards, and additional merchant associations joined as plaintiffs.
“We believe that price fixing of interchange is equally as problematic in debit cards as it is in credit cards,” said NACS President and CEO Hank Armour. “Because debit cards are commonly used at convenience stores, especially at the gas pump, this is a significant amendment to the complaint,” said Armour.
“Whether debit or credit cards, the fact is that Visa and MasterCard charge Americans some of the highest interchange fees in the world,” said Armour, who on Feb. 15 testified before the U.S. House of Representatives Subcommittee on Commerce, Trade and Consumer Protection in the hearing, “The Law and Economics of Interchange Fees.”
The complaint in the lawsuit seeks a permanent injunction barring the companies from continuing practices that violate antitrust law.
Interchange, a fee that is collectively set by Visa and MasterCard’s member banks, is a percentage of each transaction that banks collect from retailers every time a credit or debit card is used to pay for a purchase, adding up to billions of dollars each year.
“The system is clearly broken,” added Mallory Duncan, chairman of the Merchants Payments Coalition (MPC), a coalition of some 20 trade associations representing retailers, restaurant, supermarkets, drug stores, convenience stores, gas stations, online merchants and other businesses that accept debit and credit cards. The coalition is fighting for a more competitive card system. “Visa and MasterCard compete to charge the highest interchange fees--fees that banks don’t pay but all consumers do. In virtually every other marketplace, competition results in lower prices, but not with interchange fees,” said Duncan, who also is senior vice president and general counsel at the National Retail Federation.
“It’s not just that the fees are unfair; they are hidden,” Duncan said. “Credit card companies can increase their interchange fees--which can approach 2 percent or more on each transaction--by any amount, and they forbid merchants from disclosing the fees they charge.”
In the United States, interchange impacts not only the merchants but has the largest impact on American consumers. This “hidden” tax was estimated to cost approximately $26 billion in 2004.
Do not expect to see much on this lawsuit soon. The lawsuit is expected not to go to trial until sometime in 2008.
In the meantime, the banks will just see their fees grow as the price of fuel grows and as the taxes collected by state and federal governments on the fuel grow.