Parting Thoughts

The Evil Credit Card Empires or How a Class Action Suit Has No Class

by JD Neeson, President

Visa-MasterCard recently settled a class action suit resolving claims by merchants that the credit card companies colluded in setting excessive fees. The general consensus is that the credit card companies got away with murder. The total settlement is around eight billion which is a tiny slice of the total pie. What mitigated this feeling a bit was a wide spread belief that the arrangement would allow merchants to apply a surcharge to customers who use Visa and MasterCard credit cards although the deal specifically excluded any surcharges on Visa and MasterCard debit cards.

But not so fast, as my grandmother used to say. Under the terms of the agreement any merchant who chooses to charge a surcharge on a Visa or MasterCard credit card must also charge a surcharge on any American Express transactions.

However, American Express has its own rule that states merchants must treat every form of electronic payment the same. So if the merchant charges a surcharge on an American Express card it must also add it to every other card it accepts including debit cards. But if you remember, the settlement excludes debit cards. So if a merchant accepts American Express he can not charge any surcharges on any card.

So perhaps the solution for a merchant would be stop accepting American Express cards.

But once again, hold your horses, as my Grandmother also used to say.

In California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas it is illegal to apply any surcharges at all.

In Hawaii, Illinois, Kentucky, Missouri, New Jersey, Pennsylvania, Rhode Island, South Carolina, Utah, Vermont, Tennessee, and West Virginia there is pending legislation to make it illegal as well.

And who do you suppose supported and is supporting anti-surcharge legislation? The credit card companies have invested heavily in lobbying efforts in all of these states and I suspect there are a bunch of freshmen state representatives in the remaining states that are being courted as we speak.

In some ways this is a moot issue. I don’t believe, in this day and age, any merchant could get away with putting a surcharge on credit cards anyway. Customers would just go to another supplier. What is more interesting to me is whether the credit card fees have been rolled into the price of the product or whether merchants are just absorbing the cost.

In our case our credit card expenses are about 2.2 percent so we just absorb the cost, but in smaller companies the amount can easily be 3-4 percent. The way that the credit card companies set up these rates is also insidious. We have approximately twelve different rate categories and there are about seven additional types of surcharges so analyzing the rate difference or comparing them with other credit card processing companies is just about impossible.

Categories: Economy, JD Neeson, Musings

Tags: american express, class action lawsuit, credit card legislation, credit card surcharge legality, credit card surcharges, Marine Parts Express, visa mastercard

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