US retailers go after card firms

Retailers are complaining that credit card fees are unfairly high

Credit card firms, including Visa and Mastercard, are under increasing attack over their fees, with the largest US merchant groups now joining the fray.

Four groups representing retailers have filed a class action law suit accusing card issuers of colluding to fix fees.

The merchants are seeking billions of dollars in damages.

Visa and Mastercard, which have already come under fire in the US and UK for their business practices, deny any wrongdoing and defend their charges.

The legal action has been brought by the National Association of Convenience Stores, the National Association of Chain Drug Stores, the National Community Pharmacists Association and the National Cooperative Grocers Association.

Credit card interchange fees are the third-largest expense for many chain drug stores after rent and the cost of labour Craig Fuller Chief executive National Association of Chain Drug Stores

MasterCard said that the legal action is "without merit", adding that the retailers wanted "the benefits of accepting payment cards without having to pay for the value of the services they receive".

Visa said it was confident it would be able to defend its fees, calling them "fair".

A number of banks also have been named in the law suit, including Citigroup, Bank of America, and JPMorgan Chase.

Off the top

At the heart of the battle are the interchange fees charged by credit card companies.

A retailer has to pay a fee of about 1.7% of the total value of goods in order to get payment from the credit card company.

The merchants complain that this is rate is more than double the rate paid in Europe and Australia, and that the fee is being used to underwrite promotional offers at the credit card firms.

They estimated that the card companies' interchange fees cost the average US family $232 (£131) during 2004.

"Credit card interchange fees are the third-largest expense for many chain drug stores after rent and the cost of labour," said Craig Fuller, chief executive of the National Association of Chain Drug Stores.

Ongoing fights

Visa and MasterCard have previously been embroiled in lengthy legal battles regarding their fees and business practices.

In 2003, Visa and Mastercard agreed to pay about $3bn to settle a legal action brought by retailers who argued that they were forced to accept higher-cost, signature-verified debit cards.

Last year, the US Supreme Court upheld a decision that found Visa and Mastercard were wrong to stop member banks from issuing credit cards on rival networks such as Discover and American Express.

In the UK, meanwhile, the Office of Fair Trading (OFT) accused Mastercard and the banks issuing its credit cards of overcharging customers.

Mastercard has changed its fee charging practices in the UK and said it plans to appeal the OFT's decision.