Is it a good idea to file suit over credit card fees?

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It’s likely you don’t know this, but if you’re a boat dealership and, therefore, a small business, you’re generally included in an antitrust suit by retailers against the big bank credit card companies.

To date, this has escaped the attention of most media. However, a suit was filed by some 5 million retailers against Visa, MasterCard, and 13 big banks over the 2 percent “interchange” fees they charge retailers on credit card transactions. Moreover, it’s a notable sidebar that the case will be heard this September in the U.S. Eastern District Court by Judge John Gleeson. He ruled against Visa and MasterCard in another class-action suit by Wal-Mart back in 1996 that resulted in the largest antitrust settlement to date ($3 billion in damages and changes in business practices costing an estimated $25 billion more).

But I have to ask this question: Has demonizing the banks gone too far? Is filing (and presumably winning) a class-action suit like this really good for us as small businesses?

I’m not defending the banks here. Certainly the banks have been far from blameless for their roles in the housing bubble, albeit in fact they were literally pushed into lower loan standards by the Clinton and Bush administrations. Even today, the Fed is still supporting easy-money policies with down-payment subsidies for low-income buyers and pushing the banks to ease standards. Meanwhile, the Federal Housing Finance Agency is suing 17 banks for selling risky mortgages to Fannie and Freddie. And, just two months before FHA filed those suits the Justice Department was reportedly “urging” a number of banks to lower lending standards for minorities with poor credit, implying discrimination charges if they didn’t! Can you say: Damned if you do, damned if you don’t!

Still, when it comes to the credit card lawsuits, it seems reasonable to ask whether this is a good road to travel. A ruling, for example, against the banks would be huge. Damages could run into the hundreds of billions of dollars. Moreover, it’s possible the judge could order the current 2 percent “interchange” fee be lowered to, say, 0.5 percent (current rate in Australia or 0.3 rate as in Europe). That would cost banks four or five times more than the recent cap that was placed on debit card fees by the so-called “Durbin Amendment.”

But wait a minute. Don’t the banks provide a valuable service to retailers via the credit card operations? While I have no idea what the real costs are that the banks must cover to provide the interchange services, I suspect they’re significant for such things as continuous improvements and upgrades in processing equipment and personnel training.

Moreover, what if this lawsuit does go against the banks? How will they make up the potential billions ordered paid out in damages? Or, what if they’re forced to lower the rate – will service to retailers be lowered accordingly? Could the service disappear altogether, meaning those purchases and services by customers in our dealerships would have to go back to cash or, worse, we’d have to go back to giving customers credit? Oh, the collection headaches that might mean! Yes, the credit cards do provide a genuine service to retailers.

So, there’s a lot to think about as a retailer pondering this lawsuit and its possible outcome. Honestly, I’m not certain what to think about this – for or against. Perhaps it would help if I knew what you, as a boat retailer out on the front line, think about it?

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