Controversial Swipe Fee Settlement Approved, Retailers Appeal

In a ruling that has disappointed many retailers, on Friday, December 13, a U.S. district court judge gave final approval to the $7.25 billion swipe fee settlement reached last year in a class-action lawsuit brought against Visa, MasterCard, and a group of card-issuing banks. The court concluded that the settlement “secures both a significant damage award and meaningful injunctive relief.”

The huge class-action antitrust settlement, which set a U.S. record, aims to resolve claims made by merchants and retail trade groups that Visa, MasterCard, and the banks colluded to fix the “interchange fees” U.S. merchants must pay when shoppers swipe a MasterCard or Visa card. The settlement has already given merchants the freedom to pass the fees, which totaled more than $30 billion last year, directly to consumers via surcharges, although very few are doing so yet.

Approval of the settlement is subject to appeal, and, according to the Minneapolis Star-Tribune, three appeals have already been filed, including one from Home Depot and another from a trade organization.  More appeals are expected from many of the retailers that originally opposed the settlement, as reported by AssociationsNow.com, and the National Grocers Association noted in a press release that it, too, planned to appeal the decision.

“We are very disappointed that this deeply flawed settlement has been approved. It is not supported by the retail industry and would do nothing to reduce swipe fees or keep them from rising in the future,” said the National Retail Federation (NRF) Senior Vice President and General Counsel Mallory Duncan. “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. We are reviewing the ruling and will take whatever steps are necessary to protect the rights of merchants and safeguard the pocketbooks of their customers.”

“It is unfortunate that the judge has approved this settlement despite the strong objection to it from thousands of retailers,” said American Booksellers Association CEO Oren Teicher. “The proposed settlement is one-sided and preserves MasterCard and Visa’s anticompetitive practices. ABA will continue to work with a coalition of retail trade groups in this matter in an effort to do what is best for our member booksellers.”

Close to 8,000 merchants, representing at least 25 percent of Visa and MasterCard volume, had opted out of the antitrust lawsuit settlement, including 10 of the original 19 named class plaintiffs. In addition, three associations — the American Booksellers Association, the National Association of College Stores, and the National Retail Federation — and 17 retail and restaurant companies filed a brief in opposition to the settlement. The groups had appealed preliminary approval of the settlement in December 2012.

The groups argued that the settlement locks in a broken interchange system, deprives merchants of their right to fight what they contend are anticompetitive practices of Visa and MasterCard in court, and constrains innovations, such as mobile technology, that could bring competition to the marketplace.

They further noted that the settlement amounted to less than two months’ worth of swipe fees, based on the estimated $50 billion in swipe fees collected by the credit card companies on an annual basis.

In April 2013, ABA recommended that members opt out and object to the settlement.  In an e-mail to members, Teicher said this option was the “most complete way” for booksellers to express their opposition to the settlement. “It is our belief that the settlement does not offer meaningful changes to the interchange or ‘swipe fee’ rules that are the centerpiece of the case,” he wrote. “And, importantly, the settlement denies all current and future merchants their right to bring future legal action related to interchange rules and rate setting, among other things, against Visa, MasterCard, and the banks.”

However, the number of retailers opposing the settlement did not dissuade Judge John Gleeson. In his ruling, he dismissed objections to the settlement as hyperbolic and wrote: “The behavior of a small number of objectors has threatened to undermine the efforts of the others. Specifically, in their zeal to drum up objections and opt-outs by merchants around the country, certain merchant groups established websites that spread false and misleading information about the settlement and the merchants’ options.”

Gleeson stated that the settlement contains an “important step forward” in that it contains a rule change that will permit merchants to surcharge credit cards, and “for the first time, merchants will be empowered to expose hidden bank fees to their customers, educate them about those fees, and use that information to influence their customers’ choices of payment methods. In short, the settlement gives merchants an opportunity at the point of sale to stimulate the sort of network price competition that can exert the downward pressure on interchange fees they seek.”