Retailers, card companies throw legal punches as antitrust settlement drags on

Retailers, card companies throw legal punches as antitrust settlement drags on

Are you a merchant anticipating your share of the payout from the proposed settlement in the antitrust case against credit card companies? Or are you among the many retailers who chose to opt out of this settlement? Either way, you have a stake in what will be happening in the courtroom in the coming months.

Just under a year ago, Visa and MasterCard reached a landmark $6.4 billion settlement with 7 million merchants, supposedly putting an end to seven years of disputes over surcharges (the fees merchants get charged when a customer pays with a credit card).

But the fighting hasn't stopped. A hearing on whether the settlement will receive final approval from a federal court is scheduled for September. And all the many parties involved in the settlement have been using the past year for legal maneuvering and airing of grievances over the settlement's terms.

Here, we bring you up to speed.

Background: What's this settlement all about?
Retailers and several associations representing retailers filed a class action suit against Visa and MasterCard back in 2005, claiming that the arbitrary way in which the companies set swipe fees amounted to illegal price fixing. The proposed agreement was supposed to put an end to the legal battles with benefits for both sides.

Under the settlement, retailers who are part of the class (any person or business who

accepted a MasterCard and/or Visa payment between January 1, 2004 and November 27, 2012) would share in a $5.2 billion payout from the card companies in compensation for the high interchange fees charged in the past. MasterCard and Visa would cut the transaction processing charges for eight months, further reducing the burden on retailers by $1.2 billion.

The card companies also agreed to permit retailers to charge extra for customers' credit card purchases to recoup costs, something that had previously been prohibited under their agreements with merchants. This part of the agreement went into effect in January 2013.

For their part, retailers accepting the settlement had to agree that the card companies had the right to set interchange fees and that they would not bring any additional lawsuits against the card companies for antitrust violations.

Opt-outs, objections and lawsuits
Retailers who didn't like the settlement had to opt out of it by May 28, 2013. Many did, including 36 of the top 100 retailers, according to Bloomberg News. Those rejecting the agreement included Wal-Mart, Costco, Starbucks, Gap, Lowe's, the Home Depot, 7-Eleven, Dollar General, J.C. Penney, Macy's and Best Buy. A dozen national associations representing retailers, including the National Retail Federation, the National Association of Convenience Stores, the National Grocers Association and the National Restaurant Association filed objections to the settlement as well. The final list of the 7,807 opt-outs was made public June 14.

The number of merchants opting out is significant; if the sales of the merchants that opt out comprise 25 percent of the Visa's and MasterCard's transaction volume, Visa and MasterCard have the option of pulling out of the settlement. It's not clear yet if that 25 percent level has been reached (those tabulations have not been made public), and even if it is, MasterCard and Visa haven't given any indication they'd exercise that right.

If the settlement does stand, opting out of the agreement means only that those merchants won't share in the payout from the credit card companies and are free to pursue damages against those companies on their own. It doesn't free them from the restriction on filing future antitrust lawsuits; they would be bound by that provision of the settlement.

Being forced to give up their right to seek legal relief against the interchange fees -- even though they didn't sign up for the settlement -- is one of retailers' primary objections to the agreement. Others include:

• The monetary settlement is insufficient to make up for the high interchange fees charged by MasterCard and Visa in the past
• The settlement doesn't put any constraints on fee-setting in the long-term.
• One so-called benefit of the settlement -- the ability to charge customers extra for credit card purchases -- doesn't provide real relief from the fees. Plus, it's a dubious benefit. Adding a surcharge to recoup costs could cause merchants to lose business. Moreover, merchants charging consumers extra for credit card transactions is illegal in several states, and more states are considering similar legislation.

Retailers have gained some allies in their fight against the proposed agreement. According to Competition Policy International, the attorneys general in 48 states and the District of Columbia have filed an objection to the settlement, claiming the agreement is bad for consumers because it could limit states' rights to file antitrust lawsuits against the credit card companies. In addition, surcharges on credit card purchases would make goods and services more expensive for consumers.

Will the settlement be approved?
Some retailers didn't wait for the opt-out deadline to start the next legal barrage. They filed another suit against the credit card companies on May 23, once again alleging that the companies are setting fees in violation of antitrust laws. Visa and MasterCard retaliated on May 24 by filing a lawsuit against those retailers, asking the original judge in the case to declare that interchange fees are not in violation of antitrust law.

While these legal battles continue, the outlook for approval is still unclear. U.S. District Judge John Gleeson, who is presiding over the case, will hold a "fairness hearing" on the settlement on September 12, 2013, to hear arguments from both sides. 

Visa CEO Charles Scharf told investors in June that he believes the settlement will stand, according to The Wall Street Journal. But few neutral industry sources are making predictions at this point. Judge Gleeson did give his preliminary approval to the settlement last November, but with so many states and almost one-quarter of all merchants opposing it, he may reconsider that decision or push the parties to negotiate further. 

If you're a merchant wondering how this will affect your business and your credit card transactions, you've got a while to wait. It may take several months even after the September 12 hearing for the judge to deliver his final decision in the case.

See related: Requiring a minimum credit card charge: You can do it -- but should you?

Published: June 26,2023