States, Feds Amend Credit Card Company Suit

Twenty states and the U.S. Department of Justice have amended their suit against American Express, Visa, and MasterCard to stop them from restricting merchants from offering consumers discounts, rewards, and information about card costs.

 The states are challenging the credit card companies' rules that ultimately result in greater costs to consumers and merchants. Vermont also joined a proposed settlement with two of the companies. Although Visa and MasterCard have agreed to settle the case, American Express continues to fight the allegations.

"Vermont has been a leader in taking on the credit card industry for practices that stifle competition - first through legislation and now through litigation, said Vermont Attorney General William Sorrell, in announcing his state's participation in the litigation. "In these tough economic times it's more important than ever to protect our businesses and consumers from unfair fees and costs."

 In the case of Vermont, all three credit card companies must comply with a  state law that goes into effect on January 1, 2011, which eliminates restrictions on merchants that have been in place for many years.

Vermont's new credit card law

Under the new law, credit card companies must allow merchants to offer discounts and incentives based on the customer's form of payment. For example, a merchant will be able to offer a three percent discount if the customer pays in cash. The companies also must allow merchants to accept certain cards at some locations and not others, and to impose a credit card minimum of $10 if it is clearly disclosed to consumers.

Credit card acceptance fees, also known as "swipe fees," cost U.S. merchants approximately $35 billion each year, Sorrell said. Merchants pay swipe fees each time a consumer uses a credit card to make a purchase.

American Express has the highest swipe fees of any credit card network, charging merchants 3 percent on some transactions. Merchants pass on these billions of dollars in fees to consumers through higher retail prices.

Vermont's existing law and the amended complaint filed yesterday seek to remedy the credit card companies' practice of suppressing competition by forbidding merchants from rewarding consumers who use less expensive credit cards or cash. Allowing merchants to do this should foster competition among credit card companies by encouraging them to lower fees.