Wal-Mart Stores, Inc. (NYSE:WMT) has sued Visa Inc (NYSE:V) for $5 billion in damages, alleging the card issuer, in league with some US banks, forced merchants to pay excessively high card swipe charges including interchange and network fees.
The suit is one more step in the long drawn-out legal battle between merchants and card issuers Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA) on the subject of card swipe fees. A previous class-action litigation in this regard lasted seven years and culminated in a $7.25 billion settlement in July 2012. Some 8,000 retailers, including Wal-Mart Stores, Inc. (NYSE:WMT), refused to accept the settlement and demanded the imposition of penalties and card reform.
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“The proposed settlement would allow credit card companies and big banks to perpetuate a broken system that costs consumers billions of dollars each year,” said a Wal-Mart Stores, Inc. (NYSE:WMT) spokesman after Visa Inc (NYSE:V) sued Wal-Mart Stores, Inc. (NYSE:WMT) last year for its rejection of the class settlement.
Walmart’s suit was filed Tuesday in the United States District Court for the Western District of Arkansas.
The card swipe fees pie
At issue are the charges a retailer or merchant incurs when a customer swipes a card to pay for goods or services purchased. The card companies reimburse the merchant after deducting a small percentage of the total bill amount towards the facility of realizing the funds from the customer’s account. Most retailers mark up their selling prices to include this charge.
The charge paid by the merchant is split up between the card company, the banks involved and the payment processor.
Merchants have little choice but to accept this imposition as the price to be paid for attracting customers who would like to use their cards as a convenient payment option.
On the face of it, a reasonable charge could be considered justifiable given the services provided by the card companies and the banks and the infrastructure required to support an international payment network system.
Unconscionable increase, claims Wal-Mart
However, Wal-Mart Stores, Inc. (NYSE:WMT) claims that the card issuer rigged the interchange fees charged to merchants and inflated the network fees that Wal-Mart and other merchants must pay on Visa Card transactions, between 1 January 2004 and 27 November 2012.
The retailer claims that Visa raised its interchange fees between 1998 and 2006 by 234%.
It also alleged that Visa’s actions to set card swipe fees were in violation of anti-trust laws.
“This lawsuit against Visa seeks damages from price fixing and other antitrust violations that took place between Jan. 1, 2004 and Nov. 27, 2012,” said Wal-Mart spokesperson Randy Hargrove as quoted by CSP Daily News. “Walmart and all other merchants were subjected to rules and practices that harmed competition, suppressed fraud preventing technology in the U.S., and inflated interchange fees charged to merchants when customers used their credit and debit cards. As a result, many merchants were forced to pass on some of these artificially high fees to consumers.”
A group of retailers, led by Target Corporation (NYSE:TGT) and Macy’s, Inc. (NYSE:M), and including Kohl’s Corporation (NYSE:KSS), The TJX Companies, Inc. (NYSE:TJX) and J.C. Penney Company, Inc. (NYSE:JCP), started their own separate lawsuit against Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA) in May 2013.