The antitrust class action suit filed on June 22, 2005 by a Minneapolis law firm in U.S. District Court for the District of Connecticut. It targets Visa, MasterCard, Bank of America, Citibank, Bank One, Chase Manhattan Bank, JPMorgan Chase, Fleet Bank, Capital One, and other major banks on behalf of merchants, alleging that the defendants have engaged in setting excessive interchange fees for the acceptance of credit card payments. The complaint seeks relief to stop the alleged anticompetitive practices, in addition to damages.

Merchants have little or no ability to negotiate with Visa and Mastercard for lower interchange fees, and these fees are a 'hidden tax' that raise prices paid by consumers for almost every product they buy.

The named plaintiffs are Photos Etc. Corp., doing business as 30 Minute Photos Etc., of Irvine, Calif.; Traditions Classic Home Furnishings of St. Paul, Minn.; CHS Inc., also of St. Paul; A Dash Of Salt, L.L.C. of Bridgeport, Conn.; and KSARRA, LLC of Newtown, Conn. They represent a class of merchants that runs into the millions -- every U.S. business that accepts Visa and MasterCard as a form of payment.

"There is absolutely no need for these fees to be so high, and without anything to control them, the banks and the credit card companies continue to find ways to escalate the fees." states one of the plaintiffs. "The card-issuing banks that control Visa and MasterCard have the ability to set the interchange fees as high as they want, without any market force to restrain them,"

According to the credit card companies, interchange fees are a necessary element of a worldwide system that benefits both consumers and merchants, protecting them against fraud and the cost of providing funds while waiting for payment.

Visa and MasterCard have previously been found to have 'market power' in the relevant markets, so Visa, MasterCard and the banks now have the burden of proving that they have set the interchange fees at the correct competitive level. Even Visa's own economists admit that they cannot satisfy this burden.

United States has the highest credit card interchange fees in the industrialized world, and that many other countries, including Australia and members of the European Union, have recently passed measures to reduce such fees. U.S. justice officials, however, have so far declined to take similar measures against credit card companies and banks.

This litigation is a "last resort" for retailers who could see no other way to change what they see as an unfair practice. The suit is structured primarily to reform the system and to give merchants a voice, so they're not just dictated to by the banks.

The Wall Street Journal reported yesterday that some retail businesses have recently won big, undisclosed settlements with Visa and MasterCard to cut high interchange fees, including Wal-Mart, which reportedly received concessions valued at over $1 billion. The article cited a figure of $20 billion in interchange fees that merchants are charged annually by Visa and MasterCard.