Settlement May Lower Costs for Consumers
Posted on December 1st, 2010
Two of three major credit card issuers have reached a proposed settlement with the U.S. Justice Department. Along with seven state attorney generals (Ohio, Connecticut, Iowa, Maryland, Michigan, Missouri and Texas), the Justice Department filed a civil antitrust suit against the three largest credit card issuers, MasterCard, Visa and America Express, that challenged rules that allegedly restrict price competition at the point of sale by barring merchants from offering discounts, rewards and information about card costs. The restraints purportedly prohibit merchants from fostering competition among credit card networks at the point of sale and result in higher costs to consumers.
“We want to put more money in consumers’ pockets, and by eliminating credit card companies’ anticompetitive rules, we will accomplish that,” Attorney General Eric Holder said. “We need to ensure that every consumer has access to more choices and lower prices. And that simply will not happen unless American Express’s restrictive rules are changed.”
According to the Fed, merchants in the U.S. paid approximately $35 billion in credit card acceptance costs last year. A typical credit card transaction costs a merchant 1.8 to 2.2 percent of a sale, according to John Mayleben, senior vice president of technology and product development for the Michigan Retailers Association.
Under the proposed settlement, MasterCard and Visa would allow their merchants to offer consumers rebates and discounts for using a cheaper form of payment. For instance, a merchant can offer customers lower prices for using cash at the time of purchase. So depending on the card used, consumers would pay different prices. “Allowing merchants to be more flexible could mean more competition and lower prices for everyone,” said Joy Yearout, a spokeswoman for Michigan Attorney General Mike Cox.
Allowable merchant behaviors with the passage of the settlement:
• Offer consumers an immediate discount or rebate for using a particular credit card network, low-cost card within that network or other form of payment.
• Express a preference for the use of one credit card network or form of payment over another.
• Promote a particular credit card network, card or other form of payment through posted information or other communication with customers.
• Communicate to consumers the cost incurred by a merchant when they use a particular credit card network, type of card or other form of payment.
Merchants who accept Visa and MasterCard will reap benefits as soon as the judgment becomes final, probably sometime in 2011. However, merchants that accept America Express, charging the highest fees and implementing the most restrictive merchant rules, will remain bound by their current agreement as American Express announced that it had no intention of settling the case and vowed to fight the government. That is until the pending litigation against them is settled.
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Tags: Settlement, Settlement May
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