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Retailers file lawsuit against Visa over alleged price fixing

15 July 2005  |  1451 views  |  0 Source: The Kroger Co.

The Kroger Co. (NYSE: KR) today said it has filed a federal lawsuit against Visa U.S.A. Inc. and Visa International Service Association alleging that the giant credit card company has engaged in price fixing and restricting competition related to credit card transaction fees.

Joining Kroger as plaintiffs in the lawsuit, which was filed late yesterday in U.S. District Court for the Southern District of New York, are Ahold U.S.A., Inc.; Albertson's, Inc.; Eckerd Corporation; Maxi Drug, Inc.; Safeway, Inc.; and Walgreen Co.

The lawsuit alleges that Visa has unlawfully set the interchange fees that are charged to Kroger and other merchants each time a customer makes a purchase with a Visa credit card. The suit also charges Visa with creating and imposing rules and restrictions on merchants that preclude Kroger from being able to negotiate lower fees.

Interchange fees are the monies paid by retail merchants to the card association (Visa and its member banks) for processing and receiving payment for a transaction associated with a general-purpose payment card. The fees are set by Visa and its member banks and enforced by member banks through their contracts with merchants.

Rapidly rising interchange fees are a serious problem, costing retailers and consumers an estimated $20 billion or more each year. Kroger this year expects to pay credit and debit interchange fees of approximately $350 million, up more than 215% from five years ago. During that period, Visa has raised Kroger's interchange rate 11 times. Interchange fees reportedly cost the average U.S. household more than $230 a year.

At the same time, consumers are increasingly reliant on credit and debit cards. In 2003, for the first time ever, electronic payments comprised more than 50% of Kroger's sales. Today, over 60% of Kroger's overall transactions are made via credit or debit cards.

"The collective setting of interchange fees by Visa and its member banks constitutes horizontal price-fixing that leads to higher retail prices for our customers," said Paul Heldman, Kroger senior vice president and general counsel. "This hidden cost must be borne by all Kroger customers, whether they pay for their groceries with cash, by check or by debit or credit card. At a time when technology has made card authorization and processing faster, cheaper, safer and more efficient than ever, we believe that our customers should be receiving the benefit of declining interchange fees. Instead, Visa is using its extraordinary market power to profit at our customers' expense."

The complaint seeks injunctive relief to stop the anticompetitive practices plus unspecified damages.

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