Court upholds challenge to debit card fees
By Christine Dugas
USA Today
Retailers fighting Visa and MasterCard over hefty debit card fees won the go-ahead from the Supreme Court yesterday to continue the multibillion-dollar legal battle.
The antitrust lawsuit, first filed in 1996 by Wal-Mart, alleges that Visa and MasterCard use their enormous clout to force merchants that accept their credit cards to also accept costly debit cards.
"The ruling puts Visa and MasterCard in a tough spot," says Robert McKinley, CEO of card-tracker CardWeb.com. "They have to decide if they want to take their chances in court."
If Visa and MasterCard lose the antitrust suit, they would get hit with triple damages. Lloyd Constantine, lead attorney for the retailers, estimates damages could total $39 billion.
Last year, banks earned about $4.2 billion in fees for processing MasterCard and Visa signature-based debit cards, according to CardWeb.com. Retailers say the fees drive up the cost of merchandise for consumers.
Merchants say the debit card fees are unreasonable, because they are virtually the same as fees for credit cards. Yet unlike a credit card transaction, which is a loan, a debit card transaction comes directly out of a checking account and is almost risk-free for the bank.
Merchants also complain about the double standard in debit card fees. Many debit cards let consumers use them in two ways: as a signature-based Visa or MasterCard debit card and as an ATM-like card that requires a personal identification number (PIN).
The fees for the PIN-based cards, which are set by the ATM networks, are much less than the signature debit cards.
Many consumer advocates favor PIN-based cards because they are less susceptible to fraud and allow shoppers to get cash back. But banks are increasingly hitting consumers with a fee for making PIN-based debit purchases.
In yesterday's ruling, justices let stand an earlier court ruling that allowed 4 million merchants to join in a class action. Visa and MasterCard, which are owned by major banks, said they are disappointed by the ruling but that it has no bearing on the merits of the case.
A trial in federal court in Brooklyn, N.Y., could start in six to eight months.
