CUNA files amicus brief in important Florida interchange case

March 5, 2015

ATLANTA (3/6/15)--CUNA today filed an amicus brief Thursday in the U.S. Court of Appeals for the Eleventh Circuit, in a case raising many of the policy issues surrounding credit card interchange fees. The case, Dana's Railroad Supply v. Bondi, involves a First Amendment challenge to Florida's ban on merchants surcharging users of credit cards.

The retailers bringing the lawsuits argue that price determination is a form of free speech, and that in banning surcharges, merchants are unable to protest interchange fees, which they deem to be too high.

Interchange fees occur when a credit card transaction takes place, and are how credit unions are compensated for making cards available to merchants. As the CUNA brief notes, merchants receive a number of benefits from participating in the credit card system, including being able to keep staff levels low, allowing for transactions at unattended locations like gas pumps or online, as well as protecting merchants from fraud and insufficient fund losses.

"Nothing about the Florida Statute prohibits merchants from doing anything at the point-of-sale (or anywhere else) in an attempt to persuade consumers to use cash instead of a credit card," CUNA Senior Director of Advocacy and Counsel for Special Projects Robin Cook argued in the brief.

He added, "The Florida Statute also does not preclude merchants from asking Congress or the Florida Legislature to cap the fees merchants pay for credit card acceptance. In fact, merchants have repeatedly done exactly that in recent years, and have now developed this colorful theory in an effort to accomplish part of what they could not achieve in Washington and Tallahassee."

CUNA argues that allowing merchants to add additional surcharges to credit card transactions would allow merchants to shift the cost of these payments to consumers, while still allowing merchants to receive the substantial value of participating in the credit card system.

"Credit cards provide the consumer a safe, efficient, convenient, seamless transaction that redounds to the benefit of merchants," CUNA argued. "Meanwhile, card issuers like credit unions assume all of the risk and guarantee the merchant will receive payment immediately. The interchange component of the merchant discount fee is how issuers are appropriately compensated for providing this service."

Credit unions, which are generally smaller financial institutions, face numerous costs by offering and processing credit cards. Interchange fees help ensure that card programs are economic for credit unions. A surcharge on credit card transactions, CUNA argues, could lead to consumers using credit cards less frequently, instead opting for other forms of payments.

This could force credit unions to exit the credit card market, making it more difficult for them to compete with larger financial institutions to attract and retain members.

The brief also notes that consumer issues are at play with eliminating Florida's surcharge ban. Funds generated through credit card programs are used to subsidize other consumer-friendly products at credit unions, such as free checking accounts. These programs help bring more consumers into the financial system.

Surcharging could mean fewer consumers would have access to basic financial services, the brief argues. CUNA presents evidence showing this is exactly what happened after the Durbin Amendment.

Surcharging was prohibited under federal law until the statue expired in 1984. After that, 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.

Three other cases across the country are pending, in New York, California and Texas, all involving similar arguments as the Florida case. The New York Credit Union Association has filed an amicus brief for the case in that state, which is under appeal. The Texas district court has ruled surcharges are constitutional, and the California case is still pending.