A Landmark Federal Court Finding Allows Your Business To Pay No Rate And No Fees To Accept Credit Cards


Court Cases, Rules And Laws

For over 40 years credit card companies blocked the the method RateFree.org uses to liberate merchants from creadit card rates. They spent millions of dollars to lobby legislators and legal fees to fight tooth-and-nail to maintain rules that keep merchants from applying a surcharge to credit card transactions. Why are they so opposed to surcharging? Well, it’s because surcharges incentivize consumers to use cheaper payment forms like debit, cash or checks. And credit card companies don’t like to lose business to cheaper payment forms.

This foundation was set in the very early days, about 10 years after the general purpose credit card was invented. The seeds of massive change was planted when the largest anti-trust settlement in U.S. history took place. In 2005, a group of merchants claimed that MasterCard, Visa, and nine other companies including JP Morgan Chase conspired to fix the fees that merchants pay to accept credit card purchases. After years of negotiations the case, which was in the U.S. District Court for the Eastern District of New York, they settled. The credit card companies and banks agreed to pay $6 billion to the merchants who sued. As part of the settlement the RateFree.org method was not only allowed by merchant processing contracts it became part of the US law. However some states resisted the new federal rules and held on to antiquated state laws and tried to blocked the results of the settlement, but that did not last long.

"For the first time, merchants will be empowered to expose hidden bank fees to their customers, educate them about those fees and use that information to influence their customer's choices of payment methods."-Judge John Gleeson of the U.S. District Court

The thing that finally made this method very viable was changes in the state laws of California. This opened the way for this method to become widely adopted. Even though allowed in some states, it took California and the method adopted by a number of high profile businesses to increase the adoption. About a handful of states still want only government and utility companies to have access to this method, soon each state will face the federal rulings that will strike down their local laws.

Consumer groups, such as the United States Public Interest Research Group, the National Consumers League and the National Association of Consumer Advocates have all fought for a merchant's right to surcharge. Their position: rules prohibiting credit card surcharging lead to higher retail prices. Why? Because if merchants can't charge more for credit card transactions, then they have no choice but to raise their retail prices across the board to cover the merchant fees. As a result, non-credit purchasers end up subsidizing credit card purchasers. According to the Federal Reserve, the average cash purchaser subsidizes the cost of credit cards by an average of $2,188 per year, and this is disproportionately paid by poor households.

Some merchants tried to create a manual method to take advantage of these new laws. But it is not quite as simple as that. You could run afowl with state attorney generals, Visa and MasterCard. The laws and rules require changes to point of sale terminals and the processing platforms that run credit card transactions. For example: Sales receipts. Visa and MasterCard rules require that for surcharged transactions the sales receipt must show the surcharge amount as a separate line item. Processors can't offer point of sale terminals that have this functionality, but we do. You can’t apply a consumer rate to debit card transactions and it requires our patented (US Patents #US 8,131,619 / US Patents #US 8,423,439 / US Patents #US 8,478,689 ) software to be 100% sure these types of cards are not charged. This also extends to prepaid, gift and signature debit cards. We designed software running on state-of-the-art POS terminals that detects in real-time the correct way to do this. Finally a huge technical chaalange is Visa and MasterCard rules require that these transactions and costs be transmitted in distinct authorization and clearance fields.