Entrepreneur Mitch Goldstone lead fight with credit card giants Visa and MasterCard for 7 years to help reach a $7.2-billion settlement over transaction fees.
Mitch Goldstone of ScanMyPhotos was a lead plaintiff in antitrust litigation against Visa, MasterCard and the banks that issue their cards over credit card "swipe fee."
Visa, MasterCard to pay $6 billion to settle retailers' lawsuit
Most small-business owners regarded the rising fees they paid to Visa and MasterCard as an unavoidable cost of doing business. Not so photo processor Mitch Goldstone. He saw it as a ripoff.Contending that a price-fixing cartel was exploiting him and other entrepreneurs, Goldstone went to war in media interviews, blog posts and as a lead plaintiff in a giant class-action lawsuit, comparing the payment processors to drug pushers and to the railroads that profited at the expense of farmers.
What Goldstone calls his "Erin Brockovich moment" arrived with last week's $7.2-billion settlement with Visa, MasterCard and the banks that issue their cards after seven years of antitrust battles in federal court in Brooklyn, N.Y. The agreement will shift power to sellers of goods and services and could transform how — and whether — millions of Americans use their credit cards.
The agreement also allows Retailers to charge customers to recover costs.
Now Visa and MasterCard have agreed for the first time to bargain with groups of retailers over credit card fees, so small businesses can team up to gain leverage.The agreement also allows merchants for the first time to charge customers extra for using credit cards, so long as the charges reflect the actual cost and are broken out clearly for consumers to see.
That would drag the processing charges — formally known as interchange fees, colloquially called credit card swipe fees — into the light, so consumers can finally see how costly they are to the businesses they patronize.
"If you ask customers what's an interchange fee, they'll say it has something to do with a freeway," Goldstone said. "And millions and millions of merchants just accepted it as a cost of doing business."The interchange fees are complex as well as arcane. The latest version of MasterCard's online rate summary, current as of April, runs 131 pages.
The Federal Reserve last year cut debit-card fees from 44 cents to 21 cents per transaction. But credit-card fees run much higher, especially for popular rewards cards, averaging 2% of a purchase price and reaching 5% for minor purchases from small retailers — a cost most Americans have been blissfully unaware of.
Goldstone says the ability to bargain collectively will gradually bring down card costs for retailers, who in a competitive environment will pass along the savings to customers across the country.
Imposing credit card surcharges is trickier. For one thing, the practice is banned in 10 states including California, although the Golden State makes an exception for gas stations.
A recent California Supreme Court decision that federal law preempts state laws dealing with credit cards means that courts could nullify the state ban on surcharges.
Many retailers say credit cards are king these days, despite efforts by some jewelers, spa owners, movers and even dentists to entice shoppers to pay with cash.
Goldstone thinks few merchants will impose surcharges but says the threat will force the card companies to lower their fees. "The balance of power is going to shift very fast," he said.
That would be a distinct contrast with the situation in 2005, when digitizing old snapshots became so cheap that his 30 Minute Photos shop slashed its charge to scan a picture from $5 to 15 cents.
Technology also was transforming credit card companies, with electronic transfers replacing manual imprint machines and carbon-copy receipts — yet the rates Goldstone paid the payment processors were rising.
"I kept asking Visa and MasterCard if they'd charge me less," he said, "but they wouldn't even call me back to discuss it."Now that the interchange war is over, Goldstone says he will devote time to nonprofits, creating a foundation that will monitor the credit card industry and a group that will lobby small businesses to support President Obama.
