NEW YORK -- A proposed $7.25 billion settlement between merchants and Visa and MasterCard over credit-card fees, announced in July, was submitted Friday for approval by a federal judge, setting in motion what will be a contentious battle over the fate of the potentially historic pact, said Reuters.
Lawyers representing 13 individual retailers and six trade associations ranging from convenience stores to restaurants this summer announced a settlement of a lawsuit filed against Visa and MasterCard in 2005. But four of the individual companies and all six of the trade associations have rejected the proposal since then.
Groups and companies that have spoken out against the deal include NACS, the Retail Industry Leaders Association (RILA), the National Retail Federation (NRF) and the National Restaurant Association among others, as well as retailers Wal-Mart Stores Inc. and Target Corp.
Although the plaintiffs' lawyers on October 19 formally asked U.S. District Judge John Gleeson in Brooklyn, N.Y., to sign off on the agreement, 10 of the 19 original stores and trade groups leading the litigation have come out in opposition to the settlement. They have argued that it offers no meaningful reform and would force them to give up the right to sue over swipe fees in the future.
"Negotiators have greatly underestimated the outrage among retailers over this flawed proposed settlement," said RILA President Sandy Kennedy in a statement. "Retailers overwhelmingly view this proposal not as a settlement, but as surrender."
He added, "The proposed class action settlement not only preserves the broken debit and credit markets, but it also denies retailers their future legal rights and effectively forces merchants to fund the settlement through unrestrained interchange fees in perpetuity. The proposal is unacceptable in every way and we look forward to making our case to the courts."
NRF senior vice president and general counsel Mallory Duncan said, "The proposal put on the table this summer was beyond tweaking, and the update presented today proves that fact. It remains manifestly unfair. The settlement still does virtually nothing to protect retailers or their customers from the abuses of the card industry, and it attempts to silence any objections for years to come. Retailers would rather take their chances in court than accept this one-sided swindle written by the card industry for the card industry."
He added, "It should prove very significant to the court that the majority of the plaintiffs in this case have repudiated the settlement, and that includes half a dozen national trade associations representing thousands of merchants. The lawyers and handful of retailers who support the settlement do not represent the retail industry."
NRF opposes the settlement because it does little to address high fees charged in the past and nothing to prevent them from rising higher in the future. The $7.25 billion figure represents less than three months' worth of swipe fee collections despite the eight-year period of the lawsuit, and the settlement fails to reform the cartel-like system where Visa and MasterCard set a rigid schedule of swipe fees all banks agree to follow while refusing to negotiate with merchants. The proposal does nothing to disclose the hidden fees or otherwise create transparency that would encourage competition. And retailers would face a long-term ban on future lawsuits over swipe fees, effectively allowing card industry practices to continue unchallenged.
Plaintiffs who did sign on include Photos Etc. Corp., Traditions Ltd., CHS Inc., Parkway Corp., Discount Optics Inc., Crystal Rock LLC., Leon's Transmission Service Inc., Payless Shoesource Inc. and Capital Audio Electronics Inc.
Some merchants supporting the settlement, including a group of about 20 mostly large drug-store and grocery chains such as Kroger Co., say it would allow them to communicate directly with customers about swipe fees.
The Electronic Payments Coalition (EPC), which opposes the retailers and represents the interests of banks, credit unions and payment card networks, posted on its website an opinion piece titled "The Truths Behind Retailer Opposition to the Interchange Settlement." Click here to view.
The credit-card companies also say they are confident that the judge will approve the settlement fees. If it receives preliminary and then final approval from Gleeson, it would be the largest federal antitrust settlement in U.S. history, said Reuters, resolving seven years of price-fixing litigation brought on behalf of nearly eight million merchants.
Visa, MasterCard and banks that issue their cards would pay $6.05 billion and offer $1.2 billion in temporary relief on interchange, or swipe, fees paid by merchants to process credit and debit transactions. The card companies will also revise their no-surcharge rules to let stores charge customers extra for paying with certain cards.
Visa said in a filing to the U.S. Securities & Exchange Commission (SEC) that its share of the settlement will be about $4 billion. Other defendants include about a dozen banks, including Citigroup Inc., HSBC Bank Holdings Plc (HSBA), PNC Bank,Wells Fargo & Co. and Bank of America Corp., according to the filing.
The settlement will be evaluated at two stages: preliminary and then final approval. At both stages, Gleeson will hear from parties both endorsing and objecting to the settlement and will weigh whether it is "fair, reasonable and adequate."
If Gleeson rejects the settlement, the parties will have to resume settlement talks or press on toward trial.
The case is In re Payment Card Interchange Fee & Merchant Discount Antitrust Litigation.
Click here to view the motion for settlement and appendix.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.