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Court Passes on Credit Card Case

WASHINGTON -- Retailers scored a victory Monday when the Supreme Court cleared the way for a lower court to hear a multibillion-dollar lawsuit against Visa and MasterCard over the types of credit card services merchants must offer.<P>At stake is...

WASHINGTON — Retailers scored a victory Monday when the Supreme Court cleared the way for a lower court to hear a multibillion-dollar lawsuit against Visa and MasterCard over the types of credit card services merchants must offer.

At stake is whether retailers can exclude from use the debit feature on cards that draws money directly from shoppers’ checking accounts, which merchants claim can be costly because the fee is almost 2 percent of the value of a purchase. Retailers want to be given a choice to use the less costly traditional credit features, for which stores are charged flat fees and that typically range from 10 cents to 25 cents, regardless of the amount charged.

Merchants sued the credit companies in 1999 accusing them of having a monopoly in violation of antitrust laws.

In sending the case back to the U.S. District Court in Brooklyn, the high court decided not to hear a pretrial appeal from Visa and MasterCard. The credit companies were trying to buck a District Court ruling made in 2000 allowing the retailers’ case to be heard as a class action, which allows people or companies unrelated to the original case to file claims for damages. In the credit card case, that could be any merchant using Visa or MasterCard.

As a class action, the credit card case, originally brought by Wal-Mart Stores, carries potential damages that are considerably higher than the original lawsuit’s claim of $8.1 billion. The potential cost to the credit card firms could be as much as $100 billion, according to some estimates.

Wal-Mart has been joined by several retailers, including Sears, Roebuck & Co., Burlington Coat Factory Warehouse and The Limited, in pursuing its antitrust case.

The credit firms appealed the case to the Supreme Court after the Second U.S. Circuit Court of Appeals in Manhattan sided with the lower court judge over granting the case class-action status.

The credit companies challenged the rules under which the class action decision was made. The companies argue that their “honor all cards” rule is key to maintaining a global credit card business.

“If the merchants prevail, the benefits of universal acceptance will be undermined and consumers will suffer by being denied their right to choose their preferred method of payment,” said a statement from MasterCard.

In addition to the cost of the debit cards, retailers contend that the feature is risky for merchants and consumers, since it doesn’t require a personal identification number.

They “can be used by any thief who can forge a consumer’s signature to empty the consumer’s checking account,” said Mallory Duncan, National Retail Federation senior vice president and general counsel.”