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Fighting Fee Increases

Businesses fight the credit card giants' high fees.

Tired of the increasing costs of credit card transactions? A group of merchants have banded together to fight back with class action lawsuits charging Visa, MasterCard and other leading banks with illegally fixing prices on interchange fees.

"The banks have become increasingly greedy with their fees, which is making life difficult for retailers and driving up prices for their customers," explains Mallory Duncan, senior vice president and general counsel of the National Retail Federation. "Visa and MasterCard are essentially monopolies, and they are using their status as monopolies to increase profits at the expense of consumers."

Interchange fees--fees banks collect from retailers every time a credit card or debit card is used to pay for a purchase--first came under fire in 2003 when retailers won the right not to accept certain high-fee debit cards. In July 2005, Kroger Co. followed suit by banding with several other large retailers to charge Visa USA Inc. and Visa International Service Association with colluding on fees. And now small businesses are joining in with a suit filed by Robins, Kaplan, Miller & Ciresi LLP on behalf of five businesses in California, Connecticut and Minnesota alleging that banks violate anti-trust laws by conspiring to fix interchange rates.

Duncan attributes the rash of suits to a seemingly arbitrary bump in interchange fees, which have jumped from a weighted average of 1.58 percent in 1998 to 1.75 percent in 2004, the NRF reports--an increase of 10.8 percent. "[Retailers'] costs are in the hands of a third party who has no incentive to keep them in check," says Duncan.

While quick to note that legal processes take time, Duncan is optimistic about the suit against Visa. "We're talking about a case with $20 billion a year in fees at stake," he notes. "This is major litigation filed by reputable attorneys with the potential to bring about real change."

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This article was originally published in the November 2005 print edition of Entrepreneur with the headline: Fee Fi Fo Fum.

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