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Is it a good idea to file suit over credit card fees?

It’s likely you don’t know this, but if you’re a boat dealership and, therefore, a small business, you’re generally included in an antitrust suit by retailers against the big bank credit card companies.

To date, this has escaped the attention of most media. However, a suit was filed by some 5 million retailers against Visa, MasterCard, and 13 big banks over the 2 percent “interchange” fees they charge retailers on credit card transactions. Moreover, it’s a notable sidebar that the case will be heard this September in the U.S. Eastern District Court by Judge John Gleeson. He ruled against Visa and MasterCard in another class-action suit by Wal-Mart back in 1996 that resulted in the largest antitrust settlement to date ($3 billion in damages and changes in business practices costing an estimated $25 billion more).

But I have to ask this question: Has demonizing the banks gone too far? Is filing (and presumably winning) a class-action suit like this really good for us as small businesses?

I’m not defending the banks here. Certainly the banks have been far from blameless for their roles in the housing bubble, albeit in fact they were literally pushed into lower loan standards by the Clinton and Bush administrations. Even today, the Fed is still supporting easy-money policies with down-payment subsidies for low-income buyers and pushing the banks to ease standards. Meanwhile, the Federal Housing Finance Agency is suing 17 banks for selling risky mortgages to Fannie and Freddie. And, just two months before FHA filed those suits the Justice Department was reportedly “urging” a number of banks to lower lending standards for minorities with poor credit, implying discrimination charges if they didn’t! Can you say: Damned if you do, damned if you don’t!

Still, when it comes to the credit card lawsuits, it seems reasonable to ask whether this is a good road to travel. A ruling, for example, against the banks would be huge. Damages could run into the hundreds of billions of dollars. Moreover, it’s possible the judge could order the current 2 percent “interchange” fee be lowered to, say, 0.5 percent (current rate in Australia or 0.3 rate as in Europe). That would cost banks four or five times more than the recent cap that was placed on debit card fees by the so-called “Durbin Amendment.”

But wait a minute. Don’t the banks provide a valuable service to retailers via the credit card operations? While I have no idea what the real costs are that the banks must cover to provide the interchange services, I suspect they’re significant for such things as continuous improvements and upgrades in processing equipment and personnel training.

Moreover, what if this lawsuit does go against the banks? How will they make up the potential billions ordered paid out in damages?  Or, what if they’re forced to lower the rate – will service to retailers be lowered accordingly? Could the service disappear altogether, meaning those purchases and services by customers in our dealerships would have to go back to cash or, worse, we’d have to go back to giving customers credit? Oh, the collection headaches that might mean! Yes, the credit cards do provide a genuine service to retailers.

So, there’s a lot to think about as a retailer pondering this lawsuit and its possible outcome. Honestly, I’m not certain what to think about this – for or against. Perhaps it would help if I knew what you, as a boat retailer out on the front line, think about it?

Comments

10 comments on “Is it a good idea to file suit over credit card fees?

  1. LARRY

    NORM…..LETS NOT KID OURSELVES, THE BANKS HAVE GROWN BIGGER AND FATTER, SINCE THE HOUSING BUBBLE WHICH ENDED UP BENEFITING MOST OF THE GIANTS, SWALLOWING SMALLER ONES, AND NOW HOLDING BILLIONS IN THEIR COFFERS. SORRY BUT WONT GET PITY FROM ME, CREDIT CARD CO’s HAVE BEEN CHARGING THE CONSUMER, THEN DOUBLE DIPPING THE MERCHANTS FOR YEARS, ACCOUNTING FOR MANY BILLIONS IN PROFITS FOR THEM, AND BECAUSE OF THEIR SIZE, THEY KNOW WE SMALL BUSINESSES ARE AT THEIR MERCY…..HOW I FEEL IS SIMPLE, PERHAPS IT IS TIME TO LET THEM KNOW THEY CAN CONTINUE TO PUSH US AROUND………SORRY BUT, I’M LOOKING FORWARD TO COLLECT SOME OF MY MONEY BACK

  2. Frederick

    Don’t kid yourself, Norm. The reason for the banking crisis was not lower lending standards–that’s propaganda. The reason was that the banks were allowed to create financial instruments and bets that had no place in traditional banking. When those bets were profitable, the banks made a fortune. When the bets went bad (perhaps as a result of incorrect risk assessment of the financial instruments) the taxpayers were put on the hook.
    By exactly the same token, the 2% transaction fee is a result of the banks preference to have the “good credit” holders cover the defaulters. It should strike you as odd that your dog could probably get a credit card here in the USA whereas it would be impossible in Europe. The lax standards for granting credit here are why the banks are allowed to charge exorbitant fees. Perhaps we should put banks back in the business of banking, not betting? Tighten up the fees banks are allowed to charge and they might miraculously start actually qualifying their loans.

  3. JMC

    Lets us get a little old fashioned. I quit taking charge cards in 2001 and have never had a minute of regret over the decision. Cash, Local checks and some old fashioned in house credit has made Customer good will and loyality increase because it shows I KNOW AND TRUST MY CUSTOMERS!!! When card fees replaced the wages of a good employee I said it was time to quit taking them. I have a terrible time taking my hard earned money and give it back so someone can get airline miles or cash back from the card company.

  4. Pat

    About 10 years ago AMEX sent me a letter telling me that one of my transactions with them had been randomly audited in house and that the approval code was wrong, we somehow had 3# and 3 letters vs the 6# we were supposed to and they had reversed the transaction, the customer had already paid them and had no dispute over the transaction but there in house audit flagged this. I called them and read them the 6# code on the receipt I had, and had kept for the 6 months that had already gone by. They re-reversed the transaction and told me to contact my processor to make sure they were aware of and fixed the problem. I did that and then got back in touch with AMEX to let them know the processor was aware and had fixed the issue. About 3 months later, in early winter, I got another of the same letter, again I called with the approval code and was told in paraphrasing “Tough, we told you to fix it” I explained that I had the right codes, the customer had paid them and had no problems and I had no control over the processor going back through months of transactions which AMEX had approved and paid months before. They sent me up the ladder telling me a version of too bad soo sad all the way up. I eventually canceled all dealings with them and went to the bank to put a stop payment order in place for all future AMEX transactions. The CCard companies have everyone by the short hairs, people depend on their cards, they charge us a retailers to accept their transactions based on risk supposedly but then if a transaction is fraud (or in those cases just not how they want it) and they approve it, we do everything they ask and still they come back on us and take the money out. Their only risk is in THEIR customer defaulting on their debt, which they more than make up for with the interest they charge to anyone who doesnt pay off their bill each month. Hard to feel sorry for them

  5. Steve Baum

    Norm,
    As one of the small businesses that are being ripped off by the credit card processors here are a few facts – there are at least 100 different interchange rates based on the type of card processed (basic, reward, foreign, business, level 1, level 2, level3 etc. etc.) and the fee changes with every one of them, we as merchants have no choice in deciding which cards to accept, and the fee can vary by as much as 2%. Are you aware that we as merchants pay a higher interchange rate to accept a credit card that is in a business name than for a card in a persons name, WHY? All of those rewards cards – Visa and Mastercard don’t pay for that, we do, in the form of higher interchange rates for those particular cards, and most of the time, we don’t even know it at the time of the transaction. Have you ever looked at a monthly statement from your processor, my account rep can’t even understand it. I say that if the card carrier is a greater risk, then charge them a highter interest rate for bearing that risk, but don’t make us bear the cost of the processors bad credit decisions. I suggest you review your statement, I think you will find that almost none of your transactions process at the lowest rate that you were quoted, the reason being – they don’t issue very many of those basic, non reward, perfect credit risk cards, that are the only ones that qualify for the best rate. In general I am against class action suits, and that includes this one, I don’t think anyone wins except the lawyers (and we all know what should be done with them). The cost needs to be put back on the card holders that are the bad credit risk, I believe a 0.5% inter-change rate is fair for both the Credit Card Companies as well as us small businesses that are tired of having our pockets picked every month.

  6. blondet

    Hei,

    Just for info, in France, the rate for debit card use in my shop is 0.45%
    Seven years ago as I started my business, it was 0.7%.
    In fact I had to bargain with my banks to get to 0.45%
    We do not use Credit card in our shops, the revolving system / credit card is to expensive either for our customers or for us.
    On another hand in France, the use of check is still common, and free of charge. (the cost is for the banks)(apparently it cost them around 0.50€ to analyse and archive)
    Sometimes I’d rather receiving a check for big amount to avoid the debit card fees

  7. Jim Glus

    Norm, you wrote “..But wait a minute. Don’t the banks provide a valuable service to retailers via the credit card operations?..” Yes, they do. However, they do it for one reason only, to suck millions of dollars out the Merchant. You know I love you Norm, and I follow your blog religiously and you’re always on target but your wrong on this one. The merchant has always taken the blunt of the charges for accepting credit cards. I’ve been hit by chargebacks from the customer and have supplied tons of proof that the credit card holder is lying, stealing, creating fraud only to be told “To Bad”. My merchant service company has come right out and told me bluntly that Visa will ALWAYS rule in favor of the credit card holder no matter how much proof you supply ( in a “card not present” situation”) and American Express will pretty much do the same under many different circomstances. One should check with fuel docks in South Florida to see how many thousands of dollars they have lost due to American Express and dishonest captains and owners. Will banks stop offering the service? In my humble opionion, NO WAY, they need the income gleemed from us merchants and will always offer it. But, I do believe that if they loose the suit that they will just come up with another avenue to regain what they loose so in the long run, we will still be affected.

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