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Visa sued for price-fixing

Kroger says it has teamed with some other grocery and drug chains to file a federal lawsuit against Visa. It charges the credit-card issuer with price-fixing and restricting competition in the credit-card business.
/ Source: The Associated Press

Grocery chain operator Kroger Co. and several other large retailers are charging Visa with price-fixing on credit-card transaction fees.

Kroger said Friday a federal lawsuit alleges Visa USA Inc. and Visa International Service Association are colluding with member banks to illegally fix prices on interchange fees. Credit card issuers such as Visa and MasterCard charge merchants the fees each time a customer pays with a credit card.

Cincinnati-based Kroger also says that Visa set rules and restrictions that forbid merchants like Kroger from negotiating lower fees. Interchange fees are a source of hefty profits for the credit card industry.

“It’s not fair to Kroger, and it’s not fair to our customers, who wind up footing the bill through higher retail prices,” Kroger spokesman Gary Rhodes said.

Grocers don’t oppose the fees themselves but believe they’re not based on market forces as they should be, Rhodes said.

“The fees are a cash cow for Visa,” he said.

Kroger, the nation’s biggest grocery chain after Wal-Mart Stores Inc. with 2,524 stores in 32 states, said it filed the lawsuit late Thursday in U.S. District Court for the Southern District of New York. Other plaintiffs in the lawsuit are Ahold USA Inc., Albertson’s Inc., Eckerd Corp., Maxi Drug Inc., Safeway Inc., and Walgreen Co., Kroger said.

Safeway joined the suit as part of an effort to provide better value to its customers, said company spokeswoman Teena Maasingill. Spokesmen for Walgreen, Albertson’s and Ahold USA declined to comment on the suit. The Jean Coutu Group Inc., which owns Maxi Drug and about 1,500 Eckerd stores, could not be reached for comment.

To Foster City, Calif.-based Visa, which is the world’s largest payment system and is jointly owned by thousands of banks and other financial institutions, the lawsuit is “further evidence that some in the merchant community are on a campaign to shift their costs onto consumers,” vice president Paul Cohen said in a statement.

“Experience shows that the marketplace -- not a courthouse --is the best determinant of price,” Cohen said. “Ultimately, price controls are bad for consumers, bad for merchants and bad for the economy.”

Last month, a group of small retailers filed a lawsuit in Connecticut federal court against Visa, MasterCard Inc. and several big banks, including Bank of America Corp. and Citigroup Inc., alleging they set “exorbitant” interchange fees.

One of those plaintiffs, Mitch Goldstone, runs 30 Minute Photos Etc. of Irvine, Calif., and also an online photo service. He said the transaction fees are increasingly significant as more business is done online.

“I’m very encouraged by it,” Goldstone said Friday of the Kroger-announced lawsuit. “I’m delighted there is additional attention to the unlawful price-fixing.”

Kroger spokesman Rhodes said the company hasn’t ruled out suing other companies over the fees.

The National Retail Federation, a trade group representing more than 1.4 million establishments, said the lawsuit would draw attention to a “hidden tax” and might affect the practice in credit card companies other than Visa.

Most consumers, who pay interest on credit card balances, don’t know about the fees ranging from a few pennies to a few dollars that stores pay on each transaction, said Tracy Mullin, the group’s president and chief executive.

“That drives up prices for everyone and is especially unfair for customers who pay cash,” she said.