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)