Merchants Push Back Against Swipe-Fee Deal

Objecting to, opting out of settlement, considering legal action

WASHINGTON -- A group of 19 retailers including 7-Eleven, Alon Brands, Wal-Mart, Costco and Starbucks are opting out of a pending class-action settlement with Visa and MasterCard, potentially setting the stage for more battles over transaction-processing fees, said Dow Jones.

The merchants said the pending deal, reached last summer, will not stop interchange or "swipe" fees from rising and violates their legal rights by preventing them from bringing legal action against the credit-card networks for alleged anticompetitive behavior in the future.

"If this settlement is approved, it would allow credit-card companies and big banks to perpetuate an unfair and broken system that costs all consumers, including those who don't even have a credit or debit card," Mike Cook, senior vice president of finance and assistant treasurer for Wal-Mart, said Tuesday in a statement obtained by the news agency.

The group of merchants said they are objecting to and opting out of the settlement. They also are considering "additional legal action to recover damages from Visa and MasterCard under U.S. antitrust laws," according to the group's statement.

The move comes a week before a court deadline to object to and opt out of the deal, announced last July.

If approved, the settlement would deliver up to $6.05 billion to as many as eight million merchants who accept Visa and MasterCard credit cards. The defendants have also agreed to temporarily lower swipe fees by an amount equal to $1.2 billion.

Some changes have already been made as a result of the settlement. For example, Visa and MasterCard in January eliminated rules that previously prohibited merchants from tacking on an extra fee to customers who pay with a credit card.

The deal is intended to put to rest litigation filed against Visa, MasterCard and several large banks that issue the payment networks' credit cards, including Bank of America, J.P. Morgan Chase and Capital One.

The suits, filed by merchants and trade groups, alleged that the defendants conspired to set transaction fees that retailers pay each time a customer pays with a credit card at arbitrarily high levels. The fees are set by Visa and MasterCard and collected by the banks that issue their cards as revenue.

But the settlement has drawn heated opposition from several trade groups, including named plaintiffs in the suits, as well as some large merchants. The opponents, which want to derail the deal, argue the amount being paid is a drop in the bucket compared with the amount of swipe fees they have paid over the years.

They also argue that the deal strips them of their right to due process by not allowing them to opt out of the rule changes, which apply to all merchants regardless of whether they opt out of the settlement.

A spokeswoman for the Electronic Payments Coalition, a lobbying group that represents Visa, MasterCard and large banks, didn't immediately respond to a request for comment.

Judge John Gleeson of U.S. District Court in Brooklyn granted preliminary approval to the settlement in November, and a hearing on final approval is scheduled for Sept. 12.

Also on Tuesday, the National Retail Federation (NRF) announced that it will formally oppose a proposed settlement of a federal antitrust lawsuit over credit-card swipe fees, and it urged retailers to carefully consider their own decisions before next week's deadline set by the court.

"The proposed settlement does nothing to bring swipe fees under control and would give Visa and MasterCard a legal blessing to continue their abuse of merchants and consumers indefinitely," NRF senior vice president and general counsel Mallory Duncan said. "No settlement at all would be better than this one-sided 'agreement' written by the card companies for the card companies that would tie retailers' hands for decades to come."

While many retailers have already filed paperwork with the U.S. District Court in Brooklyn, N.Y., opposing the settlement, many small retailers have yet to act because they lack the legal expertise and resources to fully assess the complicated proposal. Retailers who oppose the plan have until May 28 to say whether they will opt out of the money offered and accompanying restrictions on future legal action, object to proposed injunctive relief that comes with additional restrictions, or--as NRF plans--do both. Under the class-action terms of the proposed agreement, retailers who do not opt out by the deadline will automatically be considered to have accepted the settlement and will give up the right to file future lawsuits over the fees and other restrictive rules.

NRF opposes the settlement because it fails to reform the price-fixing system under which Visa and MasterCard set the schedule of swipe fees followed by the thousands of banks that issue their credit cards, or to introduce transparency that would lead to competition to lower the fees. Rather than lowering the fees, the card companies have proposed that the fees be passed along to consumers in the form of a surcharge, even though most major retailers have rejected surcharges as the opposite of what they have sought during the years-long fight over swipe fees.

Retailers who do not opt out--and thereby become fully bound by the restrictions of the agreement--will be eligible for a share of the $7.25 billion. But the figure amounts to less than three months' worth of swipe fee charges, and the small retailers hit hardest by the fees would give up their rights for as little as a few hundred dollars.

The suit was brought in 2005 by 19 trade associations and individual retail companies, but a majority--including all six trade associations--rejected the settlement when it was proposed last summer. NRF, like most retailers, is not a party to the lawsuit, but has led the retail industry's opposition to the settlement because NRF member companies would be dragged into its terms as part of the class action.