NEW ORLEANS (8/6/15)--CUNA filed an amicus brief Tuesday arguing that allowing merchants to add additional surcharges to credit card transactions would shift these payment costs to consumers and financial institutions. The case, Rowell et al v. Pettijohn in the Texas Western District Court, involves a group of merchants challenging a Texas state law that prohibits merchants from imposing a surcharge on a buyer who uses a credit card.
The payments in question are generally known as interchange fees, and CUNA’s brief argues that allowing merchants to shift the cost of these fees would allow them to receive the substantial value of participating in the credit card system, while passing costs along to consumers and financial institutions.
“Without the Texas surcharge ban, merchants would be able to add additional fees on to products when consumers use their credit card as payment, and shift the cost of these electronic payments to consumers,” said Jared Ihrig, chief compliance officer at CUNA. “This would be inappropriate because merchants receive a number of benefits from participating in the credit card system, including increased sales, being able to keep staff levels low, allowing for transactions at any time through automated or online processes, fraud protection and insufficient fund loss protection. Consumers should be protected through standardized pricing so that the posted price is the amount that card users pay.”
CUNA’s argument states that surcharging credit card transactions may lead to consumers using other forms of payments. This would present a problem for credit unions that use interchange fees to fund their card and other programs. Interchange fees also help cover costs of card-fraud prevention and protection.
In addition, it could cause credit unions and other smaller institutions to re-evaluate their credit offerings and possibly exit the market. This would result in consumers having fewer credit cards from which to choose, forcing them to rely on only a handful of large issuers for credit and debit cards.
“[Interchange] fees also allow credit unions and banks to bring more consumers at all income levels into the financial system through free checking and other programs,” the brief reads. “Data show it is cash customers who are outside the financial system who stand to lose the most from surcharging.”
Surcharging was prohibited under federal law until the statute expired in 1984, and Visa and MasterCard banned surcharging as part of their network agreements. A 2013 antitrust case caused the bans to be removed from those agreements, making the state bans more relevant.
There are three other pending interchange fees cases in Florida, New York and California, all involving similar arguments as the Texas case. CUNA filed an amicus brief in the Florida district court, which has ruled surcharges to be unconstitutional.
The New York Credit Union Association has filed an amicus brief for the case in that state, which is under appeal. The California case is still pending.