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Retailers Get a Court Date in Battle Over Debit Cards

Credit: Backed by the government, they claim Visa and MasterCard force them to accept the cards and that it has cost them billions in higher fees.


Some of the nation's biggest retailers will claim in federal court later this year that they have suffered $8.1 billion in damages as a result of Visa and MasterCard unfairly forcing them to accept their debit cards.

Wal-Mart Stores Inc. and Sears, Roebuck & Co., along with Safeway Stores Inc., Limited Inc., Circuit City Stores Inc. and others, could recover treble damages of $24.3 billion if they prove that Visa USA Inc. and MasterCard International violated antitrust laws.

In a series of rulings this month, the U.S. District Court in Brooklyn, N.Y., set a November trial date for the case, originally filed in 1997, and denied a request by the card companies to prevent government lawyers, who have filed a similar suit against Visa and MasterCard, from sharing the retailers' analysis of about 3 million pages of confidential credit card company documents.

The retailers charge that Visa and MasterCard unfairly control the credit card market in today's buy-now, pay-later economy, and that no merchant can survive without them.

They are joined in that claim by the Justice Department, which has filed a separate suit against the credit card companies alleging anti-competitive practices. A government brief says the two companies, controlled by the country's largest banks, account for 75% of all credit card purchases.

The card companies deny the allegations.

Retailers have taken their argument a step further, arguing that Visa and MasterCard use their monopoly power to force retailers that accept their charge cards to also take other forms of the card, including so-called check cards that deduct money directly from a customer's bank account. The big banks' check cards, however, cost merchants more than traditional, regional ATM cards.

"If retailers were free to say no to the cards, they'd be able to get the transaction another way, at a lower cost to the retailer and to the consumer," said Lloyd Constantine, of New York's Constantine & Partners, lead counsel in the case. "That would force Visa and MasterCard to compete--meaning they'd have to lower the price of these cards and improve the safety features."

Both the merchants and the card issuers claim to be operating with consumers' best interests in mind.

For the card companies, the issue is one of giving consumers an option of how to pay for purchases. They say that if they didn't demand that retailers honor the check cards, many would decline to do so. That would cause customer confusion about which card to use, the issuers argue, and some of the poorest consumers might be limited in their purchasing abilities, since they often do not have access to traditional credit cards.

"Nearly 18 million merchants accept Visa because it's in their financial interest to do so," said Visa spokesman Kelly Presta. "We think consumers want to be able to walk into a store and use any type of Visa card they own."

Visa declined to elaborate on why some transactions are more costly than others. MasterCard could not be reached for comment.

The retailers, however, say that the additional charges associated with debit card transactions are ultimately passed on to consumers. Shoppers, they say, always have the choice of not patronizing stores that do not accept their preferred form of payment.

Each time a customer uses a Visa check card or MasterMoney card, retailers say, the store pays more in fees than it would for a traditional ATM card. In California, those fees can be between $1.46 and $2.25 on a $100 purchase, the retailers' attorneys said.

Those figures compare to about 8 cents per $100 in purchases made with a traditional ATM card, plaintiffs' attorney Constantine said.

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