Retailers Appeal Visa-MasterCard Interchange Settlement

The world's largest retail trade association appealed the recent approval of a $5.7 billion antitrust settlement against Visa and MasterCard over interchange fees this week. As expected, the National Retail Federation (NRF) asked the 2nd U.S. Circuit Court of Appeals to overturn the lower court's ruling just three weeks after it was issued, opening the next chapter in the still raging battle between merchants and card networks over card processing costs.

U.S. District Judge John Gleeson approved the controversial settlement on December 13, 2013, ending a suit filed against Visa, MasterCard and several financial institutions in 2005 by merchants that alleged the card networks and banks had colluded to keep interchange, or "swipe," fees unreasonably high. Under the terms of the approved settlement, the defendants will pay merchants $5.7 billion in direct reimbursements and temporary interchange rate reductions and allow merchants to pass on their card processing costs via surcharge.

Merchants, and more specifically retailers, objected to the settlement on the grounds that the cost to Visa and MasterCard, which is still the largest antitrust settlement in U.S. history, was far too low considering the fact that Visa and MasterCard collect approximately $30 billion annually from interchange fees. They also objected to a provision of the settlement that bars merchants from ever bringing similar legal challenges against Visa and MasterCard, which, retailers argued, allows the two card processing giants to continue to set their interchange fees in secret.

"A majority of the original plaintiffs in the case repudiated the settlement as soon as they saw its terms, the nation’s largest retailers have spoken out against it, and close to 8,000 retailers and merchants have formally rejected the proposal. This is an abuse of the class action system and should never have been approved," said NRF Senior Vice President and General Counsel Mallory Duncan. "The only people pleased with this settlement are Visa and MasterCard, because it means they can continue collecting tens of billions of dollars in hidden fees, the class action lawyers who stand to collect half a billion dollars in fees without fixing the problem, and a lower court, which has cleared a time-consuming case off its docket, but has done a serious disservice to merchants and the public in the process."

In its appeal announcement, NRF also denounced the idea that surcharging was a viable solution to retailers and other merchants laboring under the high costs of card acceptance. "Instead of lowering fees, the card industry's settlement proposes that merchants pass them along to consumers in the form of surcharges," Duncan said. "That is absolutely the opposite of what the retailers sought, and major retailers have soundly rejected surcharging."

B2B sellers, however, have remained interested in surcharging ever since the practice was allowed 60 days after the settlement's preliminary approval. To learn more, check out the article titled "Just Too Early" on page 42 of the January 2014 edition of Business Credit.

- Jacob Barron, CICP, NACM staff writer

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