Merchants Say DOJ Card Settlement Does Not Go Far Enough

Merchant groups say a U.S. Justice Department settlement does not go far enough to prevent Visa Inc. and MasterCard Worldwide from engaging in anti-competitive practices.

The DOJ on June 14 filed for final approval of a deal first struck last October with the two credit card networks to eliminate prohibitions they historically have had on retailers’ ability to steer customers to cheaper forms of payment (see story). 

Under the settlement, Visa and MasterCard are required to allow merchants to offer discounts and post signs to encourage customers to use one network’s card over another and to pay with cash or check instead of a card. For instance, a store could offer a cheaper price to consumers who pay with a nonrewards credit card versus one with rewards, which carry higher fees for merchants.

However, groups such as the Retail Industry Leaders Association and Merchant Payments Coalition say the settlement does not provide enough relief.

“Visa and MasterCard have a long history of handcuffing merchants through the anticompetitive network rules,” Katherine Lugar, the executive vice president for public affairs at RILA, said in a June 14 press release. “We expect Visa and MasterCard will continue to tie merchants’ hands by not providing the information needed to give consumers the credit card discounts and other valuable incentives as intended by this remedy.”

The Merchant Payments Coalition, a consortium of other retail groups and merchants, echoed Retail Industry Leaders Association’s sentiment in a June 14 statement.

One of retailers’ main concerns is whether they will have the ability to determine which cards carry higher fees when a customer presents them at the point of sale.

In a filing in U.S. District Court for the Eastern District of New York, the Justice Department said the issue, which the Retail Industry Leaders Association and other groups raised in public comments filed in response to the proposed deal, was an important one but said Visa and MasterCard will have electronic services that will enable retailers to “differentiate among card types.”

Visa already offers a “product eligibility inquiry service” that enables a merchant to send a data request to Visa’s network to determine the interchange fees a card carries, the filing said. MasterCard plans to offer a similar service soon.

Both payment networks have agreed to offer the service to merchants and their acquiring banks for free, though acquiring banks would not be prohibited from charging their clients for the service, the Justice Department said.

Visa and MasterCard are prohibited from blocking acquiring banks from providing the information to merchants, the filing said.

The settlement stems from a lawsuit the Justice Department filed against Visa, MasterCard and American Express Co. in October. The agreement does not include Amex, which is fighting the suit (see story).

The steering rights under the settlement mirror those included in the Dodd-Frank Act provision regulating interchange fees on debit cards (see story).  The provision also intends to give merchants the ability to route transactions over debit card networks that charge lower fees.

Neither the Justice Department settlement nor the Dodd-Frank provision allows merchants to promote cards on the basis of the bank issuing the cards. They also do not allow merchants to surcharge customers for paying with a more expensive form of payment.