Wal-Mart Stores, Inc (NYSE:WMT), the largest retailer worldwide filed a lawsuit against Visa Inc (NYSE:V) on allegations that the payments technology company charged excessive transaction fees when consumers use their credit or debit cards to purchase products or services.
Visa allegedly caused enormous damage
Wal-Mart Stores, Inc (NYSE:WMT) pointed out that the strategy of Visa Inc (NYSE:V) in setting the transaction fees violated antitrust laws, and enabled card issuers to generate over $350 billion at the expense of retailers and customers for almost nine years.
“The anti-competitive conduct of Visa and the banks forced Wal-Mart to raise retail prices paid by its customers and/or reduce retail services provided to its customers as a means of offsetting some of the artificially inflated interchange fees. Visa’s monopoly power has enabled it to dictate price and inhibit competition. As a result, Wal-Mart’s retail sales were below what they would have been otherwise,” according to the retail giant in documents submitted to the court.
Wal-Mart Stores, Inc (NYSE:WMT) said the actions of Visa Inc (NYSE:V) caused “enormous damage” to its business from January 2004 until the latter part of November 2012. The company did not name any banks in the lawsuit.
Wal-Mart refused swipe fee settlement
In 2012, Wal-Mart Stores, Inc (NYSE:WMT), Target Corporation (NYSE:TGT) and some other retailers refused to accept the $7.2 billion swipe fee settlement offered Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA) related to the antitrust lawsuit filed against the credit card companies and other major banks. The retail giant opposed the settlement because it does not prohibit the credit card companies from constantly increasing hidden swipe fees in 2005.
Federal Reserve rule on swipe fees
The Federal Reserve was mandated by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act to ensure that swipe fees or interchange fees reflect the actual cost of processing debit cards transactions. In order to comply with the law, the Federal Reserve initially proposed limiting the fees to $0.12 per debit card transaction, but finally set it to $0.21 per swipe with the possibility of a few cents increase to cover some costs such as fraud. Prior the implementation of the Fed ruling, banks were charging $0.44 per debit card transaction.
Court of Appeals decision
Wal-Mart Stores, Inc (NYSE:WMT) and other retailers filed a court petition and requested the federal judge to nullify the Federal Reserve’s rule on swipe fees. Last year, District Court Judge Richard Leon tossed Fed’s and stated that it was “utterly indefensible” interpretation and “runs completely afoul of the text, design and purpose” of the Dodd-Frank law. Last week, the Court of Appeals reversed the decision of the district court and ruled that the Federal Reserve was reasonable in setting the limit for debit card swipe fees. The appeals court also noted that the Dodd-Frank amendment was written poorly and a clarification is necessary to determine the appropriate cap for debit card transaction fees.