MasterCard/Visa Antitrust Settlement Could Benefit Independent Booksellers

In late April, over 8 million merchants won a significant victory in an antitrust lawsuit against MasterCard/Visa, in which the two card companies agreed to pay out a total of $3.05 billion in damages to merchants, to lower debit card transaction fees, and to drop the "honor all cards" policy. The total settlement is the largest ever in an antitrust case, according to the American Bar Association. Recently, the New York City-based law firm Constantine & Partners, lead counsel for the plaintiffs in the suit, provided Bookselling This Week with information regarding settlement terms and the allocation process.

On April 30, Visa USA Inc. and MasterCard International Inc. agreed to settle a federal antitrust lawsuit brought in October 1996 by U.S. merchants that argued Visa and MasterCard's "honor all cards" practice -- requiring retailers to accept both credit cards and the Visa/MasterCard debit cards -- was a violation of federal antitrust law. Plaintiffs in the case included about 20 of the nation's largest retailers, including Wal-Mart and Sears, Roebuck & Co. In addition to the named plaintiffs, the lawsuit was a class action representing any merchant that had accepted Visa or MasterCard debit cards since October 1992, or approximately five million large and small retailers.

Under the two separate settlements, MasterCard agreed to pay damages of approximately $1 billion, and Visa will pay damages of about $2 billion, according to the National Retail Federation (NRF). The damages will be divided among the retailers represented in the suit, based on a percentage of the debit card transactions they have conducted. On January 1, 2004, all merchants will, for the first time, be free to accept Visa and MasterCard credit card transactions but can refuse to accept off-line signature debit transactions or vice versa.

Also as part of the settlement, on August 1, Visa and MasterCard reduced the interchange fees charged to merchants for their point-of-sale debit card transactions by approximately one-third. This price reduction is expected to provide up to $1 billion in cost savings to U.S. merchants this year alone.

However, while debit card transaction fees dropped, on the same day, Visa and MasterCard raised the fees for credit card transactions by about 1 percent. The card groups said it was a coincidence that the increase occurred on the same day as the debit change, as reported by The New York Times. According to a spokesperson for Constantine & Partners, the credit card increase is "outside the [antitrust lawsuit] agreement," and is something that Visa and MasterCard have a right to do.

Moreover, not every merchant is getting the same debit card transaction fee reduction, as the card companies are lowering fees by different percentages for different merchants. As the Times article noted, merchants with the most modern payment systems will get the smallest discounts because they often already pay less. For the most part, this means bigger retailers, but that is not always the case.

The bottom line, according to the plaintiffs' lead counsel, Lloyd Constantine, is if bookstores want to profit from the class-action lawsuit, they should not just assume that their credit card processor will simply pass the lowered transaction fees onto them -- some may require a little prodding.

Since the transaction fees went down by at least one-third on August 1, "it is important for each bookseller to contact their credit card processor or merchant bank acquirer," Constantine told BTW in an interview last May. "Merchants must go to their processor and say, I want my price decreased. This is something that small stores may not know about." He noted that, if the card processor refuses, it's time to shop for a new one.

In terms of allocation of the $3 billion in damages, Constantine noted that, any bookstore that accepted the Visa and MasterCard debit card since October 1992 is automatically included in the suit. Under the settlements, Visa is set to pay $2.025 billion to merchants over the next 10 years and MasterCard is set to pay $1.025 billion over the same period. By December 22, 2003, Visa and MasterCard must pay $350 million to the settlement fund and then pay $300 million every year for the next nine years, though the card groups have agreed to cooperate in an effort to secure financing to allow all payments to be made to merchants over the next year.

In the memorandums of understanding, Visa and MasterCard have agreed to make their transaction database available so that notice and the allocation of payments to merchants will be completed quickly, cost effectively, and accurately. "In effect, this will mean most merchants will be able to receive a claim with minimal paperwork and need to do nothing until they receive a claim form in the mail after final approval," Constantine noted.

Each merchant will receive a percentage of the damages based on volume of debit and credit card transactions between October 25, 1992, and July 31, 2003, meaning larger retailers will receive a larger percentage. Nonetheless, "even with a small store, the claim could likely be a couple hundred dollars," Constantine noted.

On January 1, 2004, all merchants, including independent booksellers, should be aware that they no longer have to "honor all cards." Each merchant has an individual decision to make about whether or not to continue accepting the debit and credit products when they are untied next January. Under the settlements, the merchants are receiving notice of their right to discontinue acceptance of the Visa and/or MasterCard debit products on at least a monthly basis from the financial institutions through which they accept and settle Visa/MasterCard transactions. A merchant may continue to accept the PIN debit products if it decides to stop accepting the other, signature authorized debit products. Any merchant that chooses to stop accepting the Visa and/or MasterCard debit products must give 30 days notice of its intent to do so.

Any retailer that received a copy of the Notice of Settlement through the mail in July is already registered on the Class Member List and needs to do nothing at present. Any merchant that accepted Visa or MasterCard credit and debit cards dating back to October 25, 1992 that did not receive a notice should request a copy of the full notice and register with the administrator, either by sending an e-mail to [email protected], or by calling (888) 641-4437, or by writing The Garden City Group, Inc., P.O. Box 9000-6014, Merrick, New York 11566; Attn.: In Re Visa Check/MasterMoney Antitrust Litigation.

The final plan of allocation, as well as other pertinent information, is posted on http://inrevisacheck-mastermoneyantitrustlitigation.com/. For questions about the settlement, merchants may contact Constantine & Partner's 24-hour help line at (888) 641-4437. -- Dave Grogan