Is the Swipe Fee Settlement Battle Really Over?

Visa and MasterCard have agreed to pay $5.7 billion in a class-action settlement — believed to be the largest U.S. antitrust class action ever — regarding fees charged to merchants each time a customer uses a credit or debit card. Judge John Gleeson of the U.S. District Court in Brooklyn, N.Y., approved the settlement Dec. 13, which stemmed from a 2005 complaint that the giant financial networks conspired to fix the fees merchants incurred with each swipe of plastic.

But the eight-year legal battle isn’t quite over. The class action initially called for a settlement greater than $7 billion, but the amount declined as members of the class — which totaled roughly 12 million merchants — opted out of the settlement. Many who elected to not participate in the settlement have filed their own lawsuits.

In his 55-page written opinion, Gleeson notes only a small number of retailers (0.05%) have objected to the settlement, but that fraction includes some of the nation’s largest retailers, like Walmart, Target and Amazon.com, and it makes up about 19% of the class’ transaction volume, he notes. Still, he was not persuaded by their objections.

Along with the $5.7 billion to be paid to class members, the settlement allows merchants to surcharge Visa and MasterCard credit cards, which means consumers using those payment networks would see a charge — for example, $2 — added to their transactions and noted on their receipts from retailers using surcharges. The settlement also allows retailers to discount transactions made with alternative forms of payment. This practice of steering consumers away from credit card transactions as a way for the retailer to save money on interchange fees was previously prohibited.

“Merchants who choose to use the power the proposed rules changes give them will be able to exercise control over (and perhaps reduce) their costs from accepting Visa and MasterCard credit cards,” Gleeson wrote.

Furthermore, the settlement requires the networks to negotiate interchange fees with merchant groups, and it also includes a provision releasing Visa and MasterCard from future lawsuits over rules covered in this case or similar ones they may make in the future.

Thousands of retailers have objected to this settlement for various reasons. Some take issue with that last part, saying the release limits their ability to fight anti-competitive rules in the future. The surcharge presents a particularly troubling dilemma for merchants: They don’t like the idea of passing these fees to consumers and risk losing their business, and some states don’t allow the practices at all. (California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas have laws that limit surcharging.)

The National Retail Federation, which was not a plaintiff in the case but had members among them, issued a release objecting to the settlement.

“We are very disappointed that this deeply flawed settlement has been approved,” said NRF Senior Vice President and General Counsel Mallory Duncan in the release. “It is not supported by the retail industry and would do nothing to reduce swipe fees or keep them from rising in the future. The settlement permanently ties the hands of thousands of businesses who wanted nothing to do with this misguided case, and a decision to approve it violates established law and common sense.”

Image: Alexander Novikov