Discover Drops "No Surcharge" Requirement, is Dropped from Merchant Lawsuit
Discover
Drops "No Surcharge" Requirement, is Dropped from
Merchant Lawsuit
Discover Card agreed to drop its requirement that merchants
not add a surcharge onto purchases made with its credit cards,
according to a joint press release from the two law firms representing
credit card merchants in a class action lawsuit against the
major credit card payment networks. In return, Discover was
removed from the list of defendants in the suit.
Credit
card surcharges are added on top of the sale price of items
for customers that make purchases with credit cards. If you're
not familiar with them, it's because so far they are rarely
a reality -- merchants are generally not allowed to charge them,
due to their agreements with the credit card payment networks
including Visa, MasterCard, American Express and Discover, and,
in some cases, due to state laws that forbid sellers from charging
customers more based on the type of payment used.
The
class action lawsuit, brought by law firms Friedman & Shube
of New York City and Reinhardt Wendorf and Blanchfield of St.
Paul, Minnesota, aims to require all the payment networks to
drop the rules against credit card surcharges. The class action
suit has not been resolved, but Discover's decision to change
its rules removes the company from any further legal issues
associated with it.
According
to Noah Shube of Friedman & Shube, merchants are currently
forced to raise prices across the board in order to compensate
for the burden of the fees they must pay the credit card payment
networks (usually between 1 and 3 percent of a credit card purchase).
Without the surcharge restriction, Shube says merchants would
have the freedom to add a charge for those who use credit cards
as payments while giving a break to those who use other payment
methods. He says the current rules against surcharges allow
card issuers and the payment networks to charge high fees, which
in turn allows them to offer rewards to credit card users who
are unaware of the fees that merchants pay. In his view, this
forces merchants into paying unfairly high fees without the
possibility of new, lower-priced payment networks entering the
market.
Shube
praised Discover as "the low cost provider" in payment
networks and said Discover dropped their requirements after
seeing the writing on the wall in terms of how the class action
suit will play out.
Late
yesterday a contrary viewpoint to Shuba's appeared. Americans
for Consumer Education & Competition, a group chaired by former
Republican Congresswoman Susan Molinari and financed by Visa,
issued a press release with the headline "Discover Card
Abandons Cardholders in Battle Against Check Out Fees".
From the ACEC's viewpoint, Discover's move is simply giving
in to the merchants' attempt to strongarm the payment networks
into providing a valuable service without getting adequate compensation.
"Discover
Card waved the white flag to merchants and handed over their
cardholders in the battle by retailers to impose check out fees
on consumers who pay with plastic," said Molinari.
"The
fact is that merchants benefit from offering credit and debit
options to consumers," according to Molinari. "Merchants seem
to think consumers ought to pay for their own goods and the
retailer's decision to provide the credit option."
Whether
the courts will see the "no surcharge" requirement
as a hindrance to competition or a consumer-friendly stipulation
remains to be seen, but as of today Discover has taken itself
out of the dispute.
Published 02/14/06 (Modified 05/07/12)
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