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Credit Card Abuse Comes in All Shapes and Sizes

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Brooklyn, NYWhile the settlement may be worth CDN $8 million, the value to credit card holders affected by the agreement is worth about five bucks. On the other side of the credit card abuse ledger is a case that may easily translate to the largest antitrust case in US history.

The latter stems from a seven-year battle by trade associations and merchants against VISA and MasterCard over so-called 'swipe fees,' or merchant fees. The allegation is that VISA and MasterCard colluded with major banks to illegally fix the fees, effectively doing an end-run around the ideals of healthy competition and bringing forth antitrust allegations.

At $7.25 billion, the proposed settlement is already the largest antitrust settlement in US history. Opponents of the settlement, however, claimed in a Bloomberg article that the settlement could actually balloon to $300 billion were the case be allowed to go to trial.

Meanwhile, according to Bloomberg News (10/10/12), while some merchants applaud the proposed settlement, others are not as happy with the proposed settlement as much as VISA and MasterCard is.

Credit card fees are charged to both consumers who use a card for purchases, and also to the merchant who incurs a fee every time a customer pays with plastic. Due to the allegations of fee fixing and antitrust, many merchants think they overpaid in the fee department.

Opponents of the settlement point out that broad clauses contained in the settlement prevent class participants from taking further legal action after the fact. Additionally, according to Bloomberg<.i> there are few, if any opt-out clauses for those merchants in the class unhappy with the inability to litigate down the road.

Nonetheless, US District Court Judge John Gleeson gave preliminary approval to the settlement in November. Gleeson noted that the bar would obviously be raised for final approval.

Opponents of the proposed credit card fraud settlement weighing an appeal were, as of November undecided on the issue. Over the interim, preliminary approval allows the settlement proponents to begin the process of signing up as many as 7 million class participants who might benefit from the proposed settlement.

The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-01720, U.S. District Court, Eastern District of New York (Brooklyn).

Meanwhile, credit card rate hikes continue to serve as a frustration for many consumers. Various fees charged to credit card users for the privilege of putting their purchases on plastic had included annual fees, credit card over limit fees and other fees, the parameters of which sometimes change without consumers even knowing.

Credit card late fees have also proven a scourge??"although recent government legislation designed to curb unfair rates and rate hikes that take advantage of the consumer have helped.

In Canada, meanwhile, consumers took MBNA Bank to task for its practice of charging a fee of $7.50 per transaction or one percent of the value of any cash advance??"whichever was greater??"in addition to interest.

The practice was costing consumers who used the cash advance option through their MBNA credit card a bit of coin and allegedly exceeded the limits of the law in Canada. The maximum annual limit for interest charges in Canada is 60 percent. However, according to the Toronto Star (10/19/12), the interest rate on cash advances could be pushed a lot higher.

The newspaper used this example to highlight the issue: A cash advance of $100 taken against an MBNA credit card would incur a transaction fee of $7.50. Assuming the cash advance was repaid a month later, there would be a further interest charge of $1.67 based on an annual interest rate of 19.99 percent.

It translates to a cost of $9.17 to borrow $100 for one month. Given the plaintiff argument that the transaction fee is, in fact a form of interest, that's 9.17 percent for a month as a cost to borrow that $100.

However, extrapolating that interest cost over a full year suddenly produces an annual interest rate of 110 percent??"almost twice the legal limit in Canada.

The lawsuit was initiated in 2003 by a Toronto-based engineer after calculating he had paid an effective annual interest rate of 94.11 percent for a cash advance.

Credit card consumers who held an MBNA MasterCard prior to November 30, 2011 or a CUETS Financial credit card issued between January 1, 2009 and November 30, 2011 could be eligible for a payment as a member of the class unless they excuse themselves from the class.

The Toronto Star reported that as many as 600,000 class members could receive a settlement payment of $5 each, regardless of whether or not they actually took out a cash advance.

In the meantime, consumers who have come to depend on credit cards as an everyday aspect of consumerism continue to balk at credit card rate hikes and other forms of credit card fraud, from which they seek relief and guidance from credit card lawyers.


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