Credit Card Companies May Be Forced to Return Fees
Feb 11th 2003 | 12:51 am
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Credit Card Companies May Be Forced to Return Fees
Credit Card Companies May Be Forced to Return Fees
Visa International and MasterCard International may have to pay back
$500 million in fees they collected from people who used their cards
abroad, according to a tentative ruling by a California judge.
The card networks should have insisted that their member banks
disclose more openly the fees for currency conversion, according to
the preliminary decision, which is under seal in state court but was
confirmed by lawyers on both sides.
The surcharges are now mentioned in the cardholder agreements that
accompany new cards. The preliminary ruling would require the charges
to appear on applications, solicitations and monthly bills as well.
"You'll get more disclosure, and then you'll get more competition,"
said Patrick J. Coughlin, a partner at Milberg Weiss Bershad Hynes &
Lerach, which represented the plaintiff. "That's really what you don't
get without the disclosure."
Judge Ronald M. Sabraw is expected to review responses to the initial
ruling and make a final decision in a few weeks.
The judgment could influence another lawsuit against Visa and
MasterCard, lawyers said. That case, in federal court in New York,
also attacks conversion fees, but names the nation's largest banks
among the defendants and is a class-action lawsuit — meaning
that repayments to cardholders could reach to the billions.
The preliminary ruling in California found nothing wrong with the
conversion fees themselves, nor did it find any violation of the
federal Truth in Lending Act, lawyers said. Only a California statute
on deceptive practices applied.
"The judge just missed the mark completely with the aspect of the
decision that relates to deceptive practices," said Noah J. Hanft,
general counsel for MasterCard.
MasterCard said that it had recommended for years that its member
banks disclose the currency conversion process. But the final decision
rested with the banks and their federal regulators, the network said.
"Bank disclosure is regulated at the federal level," said Sharon
Gamsin, a spokeswoman for MasterCard. "Judge Sabraw is trying to take
authority that rightly belongs to federal agencies that regulate bank
disclosure."
Visa said in a statement that it was disappointed with the preliminary
ruling in the case, Adam A. Schwartz v. Visa International, Visa
International Service Association, Visa U.S.A. and MasterCard
International.
"The court decision flies in the face of common sense," said Stephen
C. Theoharis, senior vice president of Visa U.S.A. "Visa pioneered
today's currency conversion system that protects consumers from
exorbitant rates when traveling abroad. The decision is fundamentally
flawed, has no basis in fact or law, and we will appeal."
Although the preliminary decision was made in a state court, it would
apply to all Visa cardholders because Visa International's
headquarters are in Foster City, Calif. MasterCard, which is based in
Purchase, N.Y., would be required to give refunds only to California
customers.
Though Judge Sabraw did not specify the amount the card networks
should pay, Mr. Coughlin said the $500 million figure represented five
years of conversion fees, starting in 1996. MasterCard would be
responsible for only 10 percent to 20 percent of that payment. Visa
and MasterCard declined to comment on the costs. That figure may even
be conservative, considering that Visa and MasterCard earned $756
million last year from conversion fees, according to the Nilson
Report, which tracks the payment industry.
For each overseas transaction on a card, Visa and MasterCard charge
their member banks, like Citibank or MBNA, an exchange rate plus a 1
percent transaction fee.
These banks pass the surcharges on to their cardholders, but few
disclose them beyond the initial cardholder agreement. Most monthly
statements list only a purchase price that includes the fees.
In addition, many issuers, including First USA and Bank of America,
collect an additional commission of 2 percent to 4 percent.
A traveler who spends $1,000 in Paris would be charged at least $10 by
Visa or MasterCard. Seven out of 10 cardholders would have to pay an
additional $20 that had been tacked on by their banks.
Some banks, including Chase, a unit of J. P. Morgan Chase, list
conversion charges separately on their bills. Should the California
decision stand, more monthly bills may look like Chase's.
Even with the surcharges, credit cards are often the best deal for
shopping abroad, beating almost all exchange counters.
David Robertson, publisher of the Nilson Report, questioned whether
the additional disclosure suggested by the court would add to
consumers' costs. "The Visa and MasterCard system is tremendously
efficient and cost effective," he said. "I think asking any card
issuer or merchant to provide information about the currency
conversion each and every time it occurs is onerous from a
technological standpoint. It's expensive to implement."
Visa and MasterCard emphasized how easy they make it for people to buy
goods and services when they travel. "This is the best game in town,"
Mr. Hanft said. "This is the most consumer-friendly payment process
out there in terms of buying things overseas."
The federal case, pending in the Southern District of New York,
challenges Visa and MasterCard's conversion systems, contending that
they are anticompetitive. How much the California case would apply is
unclear. The federal lawsuit is largely an antitrust claim; the
California case was not.
Still, "a lot of the factual predicates are the same," said Edward
Millstein, a lawyer at Berger & Montague, the Philadelphia law firm
serving as co-lead counsel for the cardholders in the case.
A separate class-action lawsuit against Visa U.S.A. and MasterCard
accuses them of anticompetitive behavior. That case, pending in
federal court in Brooklyn, was brought by retailers and involves debit
cards.
Lloyd Constantine, lead counsel for the retailers in that case, said
the tentative California decision demonstrated that "there is a
continuing practice by Visa and MasterCard of failing to disclose the
real costs of transactions they impose on consumers and merchants.`
Visa International and MasterCard International may have to pay back
$500 million in fees they collected from people who used their cards
abroad, according to a tentative ruling by a California judge.
The card networks should have insisted that their member banks
disclose more openly the fees for currency conversion, according to
the preliminary decision, which is under seal in state court but was
confirmed by lawyers on both sides.
The surcharges are now mentioned in the cardholder agreements that
accompany new cards. The preliminary ruling would require the charges
to appear on applications, solicitations and monthly bills as well.
"You'll get more disclosure, and then you'll get more competition,"
said Patrick J. Coughlin, a partner at Milberg Weiss Bershad Hynes &
Lerach, which represented the plaintiff. "That's really what you don't
get without the disclosure."
Judge Ronald M. Sabraw is expected to review responses to the initial
ruling and make a final decision in a few weeks.
The judgment could influence another lawsuit against Visa and
MasterCard, lawyers said. That case, in federal court in New York,
also attacks conversion fees, but names the nation's largest banks
among the defendants and is a class-action lawsuit — meaning
that repayments to cardholders could reach to the billions.
The preliminary ruling in California found nothing wrong with the
conversion fees themselves, nor did it find any violation of the
federal Truth in Lending Act, lawyers said. Only a California statute
on deceptive practices applied.
"The judge just missed the mark completely with the aspect of the
decision that relates to deceptive practices," said Noah J. Hanft,
general counsel for MasterCard.
MasterCard said that it had recommended for years that its member
banks disclose the currency conversion process. But the final decision
rested with the banks and their federal regulators, the network said.
"Bank disclosure is regulated at the federal level," said Sharon
Gamsin, a spokeswoman for MasterCard. "Judge Sabraw is trying to take
authority that rightly belongs to federal agencies that regulate bank
disclosure."
Visa said in a statement that it was disappointed with the preliminary
ruling in the case, Adam A. Schwartz v. Visa International, Visa
International Service Association, Visa U.S.A. and MasterCard
International.
"The court decision flies in the face of common sense," said Stephen
C. Theoharis, senior vice president of Visa U.S.A. "Visa pioneered
today's currency conversion system that protects consumers from
exorbitant rates when traveling abroad. The decision is fundamentally
flawed, has no basis in fact or law, and we will appeal."
Although the preliminary decision was made in a state court, it would
apply to all Visa cardholders because Visa International's
headquarters are in Foster City, Calif. MasterCard, which is based in
Purchase, N.Y., would be required to give refunds only to California
customers.
Though Judge Sabraw did not specify the amount the card networks
should pay, Mr. Coughlin said the $500 million figure represented five
years of conversion fees, starting in 1996. MasterCard would be
responsible for only 10 percent to 20 percent of that payment. Visa
and MasterCard declined to comment on the costs. That figure may even
be conservative, considering that Visa and MasterCard earned $756
million last year from conversion fees, according to the Nilson
Report, which tracks the payment industry.
For each overseas transaction on a card, Visa and MasterCard charge
their member banks, like Citibank or MBNA, an exchange rate plus a 1
percent transaction fee.
These banks pass the surcharges on to their cardholders, but few
disclose them beyond the initial cardholder agreement. Most monthly
statements list only a purchase price that includes the fees.
In addition, many issuers, including First USA and Bank of America,
collect an additional commission of 2 percent to 4 percent.
A traveler who spends $1,000 in Paris would be charged at least $10 by
Visa or MasterCard. Seven out of 10 cardholders would have to pay an
additional $20 that had been tacked on by their banks.
Some banks, including Chase, a unit of J. P. Morgan Chase, list
conversion charges separately on their bills. Should the California
decision stand, more monthly bills may look like Chase's.
Even with the surcharges, credit cards are often the best deal for
shopping abroad, beating almost all exchange counters.
David Robertson, publisher of the Nilson Report, questioned whether
the additional disclosure suggested by the court would add to
consumers' costs. "The Visa and MasterCard system is tremendously
efficient and cost effective," he said. "I think asking any card
issuer or merchant to provide information about the currency
conversion each and every time it occurs is onerous from a
technological standpoint. It's expensive to implement."
Visa and MasterCard emphasized how easy they make it for people to buy
goods and services when they travel. "This is the best game in town,"
Mr. Hanft said. "This is the most consumer-friendly payment process
out there in terms of buying things overseas."
The federal case, pending in the Southern District of New York,
challenges Visa and MasterCard's conversion systems, contending that
they are anticompetitive. How much the California case would apply is
unclear. The federal lawsuit is largely an antitrust claim; the
California case was not.
Still, "a lot of the factual predicates are the same," said Edward
Millstein, a lawyer at Berger & Montague, the Philadelphia law firm
serving as co-lead counsel for the cardholders in the case.
A separate class-action lawsuit against Visa U.S.A. and MasterCard
accuses them of anticompetitive behavior. That case, pending in
federal court in Brooklyn, was brought by retailers and involves debit
cards.
Lloyd Constantine, lead counsel for the retailers in that case, said
the tentative California decision demonstrated that "there is a
continuing practice by Visa and MasterCard of failing to disclose the
real costs of transactions they impose on consumers and merchants.`
Feb 11th 2003 | 10:39 am
#2
Guest
Posts: n/a
Re: Credit Card Companies May Be Forced to Return Fees
In article ,
[email protected] (Jeff) wrote:
> Credit Card Companies May Be Forced to Return Fees
>
> Visa International and MasterCard International may have to pay back
> $500 million in fees they collected from people who used their cards
> abroad, according to a tentative ruling by a California judge.
Yeh, right! The credit card companies have som many politicians in their
pockets in the United States, I doubt this will happen in our lifetime.
[email protected] (Jeff) wrote:
> Credit Card Companies May Be Forced to Return Fees
>
> Visa International and MasterCard International may have to pay back
> $500 million in fees they collected from people who used their cards
> abroad, according to a tentative ruling by a California judge.
Yeh, right! The credit card companies have som many politicians in their
pockets in the United States, I doubt this will happen in our lifetime.
