Texas Food & Fuel Joins Credit Card Settlement Opposition
Durbin also warns merchants over "bad deal"
AUSTIN, Texas -- The Texas Food & Fuel Association's board has announced that it is opposed to the recently announced settlement of the Visa/MasterCard antitrust litigation. The $7.25 billion settlement stems from a 2005 class-action lawsuit brought by a class of seven million merchants over interchange or "swipe" fees.
It joins the National Association of Convenience Stores (NACS), the Society of Independent Gasoline Marketers of America (SIGMA), other retail groups, as well as convenience retailers Thorntons and Ricker Oil and Wal-Mart Stores and Target in opposing the proposal. And U.S. Senator Dick Durbin (D-Ill.) has said that merchants should "think hard" before signing the deal.
"The relief proposed by the settlement ... fails to address significant issues regarding the relationship between merchants and credit-card companies," said Jim Kolkhorst, chairman of the association's board. "A one-time payment and temporary reduction in interchange rates cannot cure the fundamental inequities of the current system and provides no pathway for addressing these issues in the future."
In particular, the group's board was concerned about the settlement's requirement that all future claims against Visa and MasterCard be waived by those accepting the settlement's terms as well as the absence of any meaningful reforms on the part of the credit-card companies.
Like SIGMA, the Texas Food & Fuel Association was not a party to the litigation. The board's statement in no way impacts the rights of its members to file a claim on their own behalf if they choose to in order to receive a share of the proposed settlement's monetary damages, the group said.
The Texas Food & Fuel Association's membership represents 700 of the state's petroleum marketing, grocery distribution and convenience/grocery retail companies. The group was created in 2012 through the merger of the Texas Petroleum Marketers & Convenience Store Association and the Texas Grocery & Convenience Association.
Meanwhile, Durbin, who won federal limits on debit-card swipe fees, said merchants should seriously consider the deal, reported Bloomberg.
"This is a stunning giveaway to Visa and MasterCard," Durbin said in remarks last week, according to the Congressional Record. "This is a bad deal, but it is not a done deal. The merchant plaintiffs still have to decide if they will support it."
Visa and MasterCard, the world's biggest payment networks, and some of the largest banks agreed to the settlement last month after a seven-year legal battle. The accord, which requires a judge's consent, also includes a temporary reduction in so-called credit-card swipe fees, or interchange, and allows retailers to impose surcharges on such transactions. The fees average about 2% of the purchase price and generate more than $40 billion a year for U.S. banks.
"It gives Visa and MasterCard free rein to carry on their anti-competitive swipe-fee system with no real constraints and no legal accountability," said Durbin. "This is not a settlement I would agree to. I hope that the remaining merchant plaintiffs will review the proposed settlement carefully and think hard about whether it will be good for the future of our credit- and debit-card systems."
The settlement may be nullified if enough merchants refuse to join, said the news agency. Visa, MasterCard and the banks can terminate the accord if the retailers who opt out account for more than 25% of the U.S. credit-card spending processed by the two networks from Jan. 1, 2004, through the month the accord is approved by the court, according to a memorandum of understanding.
"It's highly possible Senator Durbin will introduce credit interchange legislation in next year's Congress, though it will be very challenging to gain broad-based support," Jason Kupferberg, a Jefferies & Co. analyst who covers Visa and MasterCard, said in a July 20 research note cited by Bloomberg. "Some of the class plaintiffs could opt out of the settlement and initiate new lawsuits."
Peter Larkin, chief executive officer of the National Grocers Association, which opposes the settlement, said his group plans to push for more legislation.
"It's hard to predict what Congress will do and won't do," Larkin said in a July 27 interview with the news agency. "It would be our intention to continue to talk to Congress because we think we need to achieve further reforms."
"The long business-to-business conflict over these fees is finally over and settled by the legal process," said Trish Wexler, a spokesperson for the Electronic Payments Coalition, a trade group that represents payment networks and banks. "The legal system was and is the appropriate system to resolve a large and complex dispute between companies, not Washington."
Visa's share of the settlement filed in federal court in Brooklyn, New York, is about $4.4 billion and MasterCard is responsible for $790 million, the firms have said. Bank of America Corp., the second-biggest U.S. credit-card lender, said last week that it will contribute $738 million, most of which already had been deposited into Visa's litigation escrow fund.
The dispute began in 2005. Merchants alleged the companies violated antitrust law by fixing the swipe fees. The case had been set for trial in September before U.S. District Judge John Gleeson in Brooklyn. The parties have until September 21 to agree on the details of the settlement and merchants will have 180 days after the accord is approved to decide whether to opt out.
"We are very confident that the court is going to approve this settlement," Josh Floum, Visa's legal chief, said in a July 25 conference call after the company reported fiscal third-quarter results. "This case has been pending for seven years, and during a great deal of that time, there has been a court-ordered mediation process with two mediators and the involvement of the court."
The settlement includes cash payments of $6.05 billion and $525 million. The larger amount would be reduced if some plaintiffs don't agree to participate. The accord also provides for a 10-basis-point reduction in interchange fees for eight months, valued at about $1.2 billion if all merchants in the proposed class approve, according to plaintiffs' law firms including Robins Kaplan Miller & Ciresi LLP.
The case is In re Payment Card Interchange Fee & Merchant Discount Antitrust Litigation, 05-md-01720, U.S. District Court, Eastern District of New York (Brooklyn).