BROOKLYN, N.Y. -- Several U.S. states are joining merchant groups and retailers in objecting to a $7.25 billion settlement over fees charged when customers use a Visa or MasterCard credit card, according to a Dow Jones report.
The attorneys general of California, Ohio, Arizona and six other states argued in an objection filed Tuesday that the pending deal could strip them of their rights to sue the payment networks in the future; 48 states and the District of Columbia also signed a brief supporting the objections, according to the filing in federal court in Brooklyn, the report said.
The class-action settlement, reached last July, would end litigation filed against Visa Inc., MasterCard Inc. and several large banks over interchange or "swipe" fees, which merchants pay when they accept cards. Retailers and trade groups argue the defendants conspired to set fees at arbitrarily high levels and have prevented them from lowering their costs by imposing rules that merchants must abide by to accept the cards.
The states argue that the settlement attempts to release Visa and MasterCard from claims that the states could bring against the companies in the future for actions that may harm their citizens.
The states' objection could prompt the court to order changes in the settlement before it gives final approval, although the defendants could fight such a move, Stephen Kastenberg, a partner with the law firm Ballard Spahr LLP who specializes in antitrust litigation and is not involved in the case, told the news agency.
"I am optimistic this narrow issue will get resolved before final approval," said Craig Wildfang, an attorney with Robins, Kaplan, Miller & Ciresi LLP who represents class plaintiffs in the litigation.
Trish Wexler, a spokesperson for the Electronic Payments Coalition (EPC), which represents Visa, MasterCard and banks that issue credit and debit cards, said the companies were "highly confident" that the settlement would receive final approval and did not expect the states' objections to have a "material impact on the outcome or timing of the settlement."
The deal would end litigation filed in 2005 by merchants and trade groups arguing that Visa and MasterCard's methods for setting swipe fees are anticompetitive.
Retailers argue the deal will not stop swipe fees from rising in the future, and say a release from future litigation granted to Visa and MasterCard is too broad.
"The proposed settlement will not change the tactics Visa, MasterCard and the banks use to squelch competition in the current payment marketplace," Mike Cook, senior vice president and assistant treasurer for Wal-Mart, said in a filing objecting to the deal Tuesday.
Supporters of the deal say the settlement provides the largest amount of cash relief in an antitrust class-action settlement and results in business changes that will help merchants recover the costs they pay to accept credit cards.
"This settlement represents an excellent resolution" for the plaintiffs, attorneys representing class plaintiffs said in an April court filing seeking final approval for the deal. "There is serious doubt a more-favorable result could be obtained if this case were litigated" further.
Visa, MasterCard and several banks filed their own suit Friday against several trade groups and retailers that are plaintiffs in the existing litigation, seeking a ruling that the payment networks' practices are fair and do not violate antitrust rules.
Under the settlement, Visa, MasterCard and card issuers including Bank of America Corp., J.P. Morgan Chase & Co. and Capital One Financial Corp. agreed to pay up $6.05 billion in monetary damages to a class of as many as eight million merchants. They also agreed to temporarily reduce swipe fees by an amount equal to $1.2 billion, and allow merchants to surcharge customers who pay with a credit card--a practice Visa and MasterCard previously banned.
Judge John Gleeson of U.S. District Court in Brooklyn granted preliminary approval to the settlement in November. A hearing on final approval is scheduled for Sept. 12.
Critics argue the amount of money is too small compared with the amount of interchange fees merchants pay, and claim surcharging under the terms of the settlement will not work because at least 10 states ban the practice and more have recently passed laws or introduced legislation to do so. They also say surcharging rules by competing network American Express further complicate their ability to implement the practice.
"The proposed settlement introduces a series of hurdles that make any surcharge difficult, if not impossible, to accomplish," Richard Lautch, treasurer for Starbucks Corp., said in a filing objecting to the deal Tuesday.
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