There has been strife between the payment processing networks like Visa, American Express and MasterCard and the merchants. Merchants have had to endure some stiff charges by the payment processing networks as well as penalties imposed whenever the merchant would lure away the customers to use a card that favors the merchants due to less interchange fees. The payment processing networks do not allow the merchants to influence card holders in any way. Although, convenience stores, gas stations and groceries go with a minimum purchase requirement of 10 dollars, it is against the contract between the card networks and the merchants. However, after a long investigation the Department of Justice has arrived at the conclusion that the rules of the credit card networks are unfair and has hence decided to take major action against them. Discover Financial which is also a payment processing card network is not part of this legal action.
This fight has now received more strength with the US Attorney General, Chris Kostner, joining the Department of Justice to file a civil anti-trust lawsuit along with 6 other states. The lawsuit is against the 3 card networks, American Express, Visa and MasterCard for establishing contract rules which are unfair. The Department of Justice states that these card networks have forced the merchants to sign contracts that would prevent them from providing incentives to customers who choose less expensive modes of payments from the merchants’ perspective. Some of the prime cards with reward programs cost the merchant more because they also carry high fees for transaction, also called the interchange fees. This means merchants would be paying more for such cards to these processing networks and they wouldn’t even be able to encourage the customers, through discounts to pay through some other mechanism which wouldn’t cost them so much.
A positive development from this lawsuit is that the Visa and MasterCard, the top 2 card payment processing networks in the world, have entered into agreements with the 6 states as well as the Department of Justice. According to this agreement, the card networks would eliminate contract terms that prohibit merchants from encouraging cardholders to choose alternative payment options. Meanwhile, the third card network in the lawsuit American Express is still holding its ground and is not willing to negotiate. This is because the cards offered by AmEx involve some of the highest interchange fees charged. The company offers some great rewards programs because of this high charge.