Digital Transactions Authoritative, insightful and timely information for payments professionals
By Kevin Woodward
@DTPaymentNews
As the U.S. Supreme Court gets nearer to considering the 2012 interchange settlement, the National Retail Federation and the Retail Industry Leaders Association asked the court to let stand an appeals-court ruling that struck down the settlement.
The trade groups, which for the most part represent large retailers, argue, in part, that the historic settlement’s provision allowing merchants to add surcharges for credit card transactions did little to aid them. The appeal to the Supreme Court, however, was filed by nine merchants that did not opt out of the settlement, including Photos Etc. Corp., Capital Audio Electronics Inc., and PayLess ShoeSource Inc., according to the petition filed with the Supreme Court.
In their brief, the retail groups argue that surcharging, which under loosened card-brand rules enables merchants to charge the lesser of the actual acceptance costs or 4% of the transaction amount, is not an answer to their issue, which has to do with what they see as excessive acceptance costs for credit cards. Surcharging is allowed in 40 states.
“Rather than lower the fees, the card companies proposed in the settlement that they be passed along to consumers as a surcharge,” read a statement from the retailer groups. “Major retailers rejected the surcharge proposal, saying it was the opposite of what they sought, while small retailers would have seen as little as a few hundred dollars each.”
But surcharging has an appeal to some merchants and to their merchant-services companies.
Surcharging programs generally are lucrative to independent sales organizations and acquirers, says Adil Moussa, principal at Adil Consulting LLC, an Omaha, Neb.-based advisory firm. “The spread on these programs can reach 270 basis points on an average portfolio,” Moussa says.
Such surcharging programs have issues, however, Moussa says. “The main problem is greed both on the part of the merchants and on the ISOs,” he says. “Merchants don’t lower their prices to reflect the cash discounts and ISOs try to get the maximum allowed by the card brands.”
Legal experts point out that, at least for now, the settlement’s surcharge provision still stands. “Although the settlement has been thrown out by the [appeals] court, the card networks have not revoked the rules that were put into place as a result of the settlement,” says Anita Boomstein, a partner at Manatt, Phelps & Phillips LLP, a New York City-based law firm. “Thus, at least for now, limited surcharging in accordance with the revised rules is permitted.”
As a result, what happens with the settlement appeal may affect surcharging programs. “While we have no idea what terms may be included in any revised settlement, some merchants, in anticipation of the surcharge right being made final, are moving, considering or implementing limited surcharge programs,” Boomstein says. “The more acceptance these programs gain, the harder it will be for the card brands to retrench to the old rules, where surcharges were forbidden.”
