Discover Card Drops No Surcharge Rule

Gary B. Friedman, of Friedman & Shube, New York City and Mark Reinhardt, Reinhardt Wendorf and Blanchfield, St. Paul, MN are the lead attorneys for merchants attacking the No Surcharge Rules, which prohibit merchants from passing along processing fees to cardholders via a surcharge. In their court filings, the merchants have complained that they are forced to pass along high processing fees to consumers via price increases.

"The users of high priced cards should pay high charges, to finance their frequent flier miles and rewards points. But consumers should be able to avoid those charges if they choose, by using low priced cards,'' said Reinhardt.

In a letter late Friday, Friedman informed the Court of Discover's agreement to rescind the No Surcharge Rule, hailing it as a ``significant development for the merchant class and, potentially, a pivotal step in the evolution of the payments industry.''

"On behalf of the merchant community, we applaud Discover's willingness to engage in real competition,'' said Friedman today. "Visa, Amex and MasterCard are scared to compete on merchant fees. But we will succeed in eliminating their No Surcharge Rules too -- and when we do, consumers will flock to payment cards that carry lower merchant fees, such as Discover and PIN-based debit cards.''

In their court papers, the merchants have argued the challenged rules ``safeguard the defendants' market dominance against any threat from a competitor who might seek to gain market share by offering credit or debit card payment processing services to merchants at a cheaper price.''

The No Surcharge Rule cases are expected to be consolidated with another group of merchant class actions assigned to Judge Gleeson -- the "interchange fee'' cases, which challenge the systems by which Visa and MasterCard set their merchant fees as illegal price fixing.