On December 11, 2020, Cohen Milstein, on behalf of gasoline retailers in numerous states who indirectly obtain their Visa or MasterCard credit-card acceptance service via a supplier (such as Shell, ExxonMobil, or a jobber), filed an antitrust class action in the United States District Court for the Eastern District of New York against defendants Visa, Inc. (“Visa”) and MasterCard, Inc. (“MasterCard”) for orchestrating an anticompetitive scheme artificially inflating the “interchange fees” charged to process credit card transactions on their networks.
Gasoline retailers operate on notoriously thin margins. Meanwhile, on every Visa and MasterCard credit-card transaction, these merchants pay swipe fees that average roughly two percent of all sales made at the pump. Thus, when retail gasoline customers pay with Visa or MasterCard credit cards, the profit margins for gas station owners all but disappear.
The main component of the swipe fee is the so-called “interchange fee”—a nonnegotiable fee that the merchant is obligated to pay to the card-issuing bank on each credit-card transaction under Visa and MasterCard rules. The obligation to pay the interchange fee is the product of horizontal price-fixing agreements among the card-issuing banks that comprise the Visa and MasterCard networks. The interchange fee is purely a toll that the card-issuing banks, in a collective exercise of monopoly power, decided to levy on each credit-card transaction.
To maintain their elevated interchange fee levels, the banks also enacted rules to ensure that Visa and MasterCard would never have to compete against other networks, or one another, in setting interchange fees. Indeed, Visa and MasterCard fully insulated themselves from price competition by mandating that merchants may not use the mechanism of price to induce consumers to use particular card brands or products. Among these vertical restraints is the “No-Surcharge Rule,” which prevents merchants from imposing a charge (or “surcharge”) for credit card transactions on the Visa or MasterCard network, substantially foreclosing inter-brand price competition. In the absence of the No-Surcharge Rule, merchants could induce consumers to use payment products that impose lower costs upon the merchant than do Visa-branded or MasterCard-branded credit cards. If merchants had been free during the relevant period to use credit-card surcharging to steer consumers to less costly payment options, such as debit cards, then the defendants would have faced the prospect of losing consumers and would therefore have been pressured to reduce their merchant pricing. The No-Surcharge Rules, however, have at all times insulated defendants from such competition.
This class action asserts claims under the laws of states that permit suits by “indirect purchasers.” The plaintiffs are retail gasoline businesses that purchase the defendants’ card acceptance services “indirectly,” either via a franchisor (such as Shell, ExxonMobil, Chevron, BP or Sunoco), the assignee of a franchisor (such as Equilon Enterprises), or a supplier or jobber (collectively, “Suppliers”), rather than dealing directly with a financial institution affiliated with Visa and MasterCard. In these relationships, it is the Supplier that functions as the direct purchaser of the card acceptance service. But while the Suppliers are the direct payers of interchange fees, they pass along 100% of those costs to plaintiffs and other members of the proposed class. It is the members of the proposed class who ultimately incur the overcharge that is the subject of this antitrust suit. And these class members are thus entitled to sue as indirect purchasers under the laws of the states represented in this action.