Credit Card Firms Sued: Commercial Litigation

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State Merchant, Others Allege Fee Rate-Fixing

by Paul Marks
The Hartford Courant

August 14, 2005

Digging into his wallet after a panini sandwich at JAM's deli, Bridgeport attorney Richard Bieder noticed how much the owner preferred being paid in cash. They got to talking.

More and more patrons were using credit cards after breakfast or lunch, owner Jonathan Mathias said, and the fees going to Visa or MasterCard - generally about 1.8 percent but sometimes more than 3 percent - were cutting into his profit margin.

So when Bieder joined a Minneapolis law firm to file an antitrust suit against Visa, MasterCard and about 40 major U.S. banks, he knew just where to find a plaintiff.

In a federal lawsuit filed this week in U.S. District Court in Bridgeport, Mathias joined four other small businesses to sue the two major credit card companies and banks that support them. The suit charges that banks and the card vendors have violated antitrust laws by conspiring to fix the so-called "interchange" rates paid by merchants.

"For the longest time, I couldn't understand how you're almost forced to do business with the credit card companies, and yet they have no contact with you and you can't negotiate on the price," Mathias said. For years, he had refused credit cards, changing his stance only after some of his larger customers began insisting on using them.

The suit was filed Wednesday and included as defendants Bridgeport-based People's Bank and Bank of America, which has a large presence in Connecticut.

Citigroup Inc.'s Citibank, JPMorgan Chase & Co. and other leading banks are among those charged with conspiring to set "exorbitant" interchange fees, which merchants pay every time a customer makes a purchase using a MasterCard or Visa card.

"These guys have a monopoly on the field," Bieder said.

In a statement from Josh Floum, executive vice president and general counsel, Visa said it will vigorously defend its use of interchange fees, which it called "a practice that has been successful in the marketplace as well as upheld as legal and necessary in federal court."

"We believe the merchants in this suit are seeking to shift their normal costs of doing business onto someone else, the consumer," Floum added.

Brent DiGiorgio, spokesman for People's Bank, said the lawsuit "is pending litigation and consequently we can't make any comment."

Unlike the 1970s, when general-use credit cards became popular, he said, Visa and MasterCard now have significant overlap among the banks who participate and whose executives serve on the credit card boards, which decide interchange rates.

Along with JAM's Good Food Fast and A Dash of Salt, which is Mathias' catering business, the plaintiffs include the owner of Newtown Wines & Liquors and three other small businesses in Minnesota and California. They have petitioned the court to grant class-action status, which, if granted, would mean any decision or settlement would apply to thousands of businesses.

Two years ago, Wal-Mart Stores Inc., the world's largest retailer, negotiated a multibillion-dollar settlement with Visa and MasterCard. Retailers like Home Depot Inc., Best Buy Co. and others have either won fee cuts or are working on such settlements.

The lead attorney in the Connecticut case is Craig Wildfang, a Minneapolis lawyer who represented Best Buy and Darden Restaurants Inc., owners of Olive Garden and Red Lobster, in litigation against the credit card companies. He said the 2003 settlement of the previous cases - whose terms cannot be disclosed - laid the legal groundwork for the claims he is pressing on behalf of smaller merchants.

"For many merchants, the cost of these [interchange] fees is their third or fourth largest cost" after such things as payroll and rent, Wildfang said. "We are highly confident the court will certify this as a class-action suit."

He and Bieder said about 16,000 banks take part in both Visa and MasterCard as a "joint venture."

"The case will turn on whether the antitrust laws apply to a joint venture like this," Wildfang said. "The only question is whether they are somehow immune to the antitrust laws because they are a joint venture."

The suit seeks an injunction to stop the alleged anticompetitive behavior plus damages for its plaintiffs.

Bieder said he has worked before with Robins Kaplan Miller & Ciresi LLP, the Minneapolis firm in which Wildfang is a partner. . Seeking out the owner of JAM's as a plaintiff was natural, Bieder said. The deli is a frequent lunch stop for lawyers and judges in Bridgeport, and he recalled Mathias' regular complaints.

"He'd say to me, `Every time I take a credit card, it's less for me, more for some bank,'" Bieder said.