President Barack Obama signed H.R. 6156 into law today, officially establishing permanent normal trade relations (PNTR) with Russia.

Much of what the bill does is iterated in its full title, the Russia and Moldova Jackson-Vanik Repeal and Sergei Magnitsky Rule of Law and Accountability Act of 2012. In addition to repealing the Jackson-Vanik amendment, a regularly ignored Cold War regulation that made U.S. preferential tariff rates on Russian products conditional on the country allowing Jews and other minorities to emigrate freely, the bill also normalizes trade relations with Moldova and gives the U.S. the ability to sanction Russian human rights violators according to the terms of the bill's so-called Magnitsky provisions, named after Russian lawyer Sergei Magnitsky who died in Russian prison while investigating allegations of large-scale theft on the part of Russian officials.

Normalizing trade relations with Russia became a priority once Russia officially joined the World Trade Organization (WTO) in August. According to the terms of Russia's WTO accession agreement, the country could increase tariffs on products entering the country from the U.S. until the U.S. normalized trade relations with its fellow WTO member. The presence of the Jackson-Vanik Amendment on U.S. books was considered abnormal, and Russia was, until now, within its rights to discriminate against American products.

President Obama's signature clears the bill's final hurdle and allows U.S. companies to take advantage of the newly expanded market access generated by Russia's WTO membership.

“The United States strongly supported Russia’s accession to the WTO, because it is in the interest of our exporters and the Americans they employ to bring Russia more fully into the global trading system,” said U.S. Trade Representative Ron Kirk. “With the signing of this legislation, American businesses and workers are closer to enjoying the full economic benefits of Russia’s WTO commitments.”

- Jacob Barron, CICP, NACM staff writer

On a 92-4 landslide vote, the Senate today approved H.R. 6156, a bill that would establish permanent normal trade relations (PNTR) with Russia. The bill now heads to the President's desk for signature into law.

Specifically, the bill repeals the Jackson-Vanik amendment, a Cold War relic that makes U.S. preferential tariff rates on Russian products conditional on the country allowing Jews and other minorities to emigrate freely. Its presence on U.S. books is considered discriminatory, meaning Russia has, since joining the World Trade Organization (WTO) in August, been within its rights to increase tariffs on products entering the country until the U.S. repealed the amendment.

The bill's passage means that U.S. companies can begin to take advantage of the concessions Russia made in its accession agreement with the WTO, including increased access to several of the nation's fastest-growing markets.

H.R. 6156 also normalizes trade relations with Moldova and imposes sanctions on Russian human rights violators, particularly persons identified as responsible for the detention, abuse or death of Russian human rights lawyer Sergei Magnitsky, who died under mysterious circumstances in a Russian prison in 2009.

Approval of the bill was not always a guarantee in the Senate, as a group of prominent senators sought to expand the so-called Magnitsky provisions to apply to human rights violators from all countries, rather than just those in Russia. The expanded version of the measure was authored by Sen. Ben Cardin (D-MD) who dropped his objections to moving forward with H.R. 6156 while debating the bill last night. "I hope we will make this statutorily global," he said. "We will have that debate at a later date."

- Jacob Barron, CICP, NACM staff writer

Despite the noisy objections of hundreds of retailers, U.S. District Judge John Gleeson granted preliminary approval this afternoon to a proposed settlement between merchants and Visa and MasterCard over interchange fees.

Final approval of the settlement still remains a long way off. The $7.2 billion deal includes a $6 billion payment to merchants and temporary reductions in interchange rates. It also allows merchants the right to pass their processing costs on to their customers via surcharge.

In court, Gleeson referred to the plaintiffs' objections as "overstated."

Stay tuned to NACM's blog and eNews for future updates.

- Jacob Barron, CICP, NACM staff writer

U.S. District Judge John Gleeson might rule today on giving preliminary approval to the proposed antitrust settlement in the case against Visa and MasterCard over interchange, or "swipe," fees.

Opponents to the settlement have rigorously made their case to Gleeson, and to the public, arguing that in its current state, the agreement cements Visa and MasterCard's ability to increase interchange fees at will while denying merchants the right to propose meaningful reforms.

In addition to 10 of the 19 named plaintiffs in the case opposing the settlement, 1,200 small businesses and brands have also joined the fight and urged Gleeson to deny preliminary approval. "The vocal opposition from such a substantial and diverse portion of the merchant community demonstrates just how ineffective and unacceptable this proposed settlement is," said Dave Carpenter, president and CEO of the J.D. Carpenter Companies and chairman of the National Association of Convenience Stores (NACS), which has opposed the settlement from the start. "The proposed settlement is simply a bad deal that further entrenches the anticompetitive practices of the Visa and MasterCard duopoly and denies merchants of their legal right to fight for real changes in court."

Interchange fees are currently set unilaterally by card processors like Visa and MasterCard. While the proposed settlement provides for a $6 billion payment to retailers and allows merchants to pass the fees charged on them to their customers, it does not provide for transparency in the way that the fees themselves are set. Furthermore, the settlement precludes attempts by merchants to bring similar cases at any point in the future.

Preliminary approval of the settlement would mean that supportive plaintiffs could begin to sign up merchants to participate in the deal's benefits. Gleeson has said in court that the threshold for preliminary approval is "meaningfully lower" than it will be for final approval, which could take place months down the road.

- Jacob Barron, CICP, NACM staff writer

The trade deficit narrowed as exports jumped in September 2012, according to the U.S. Department of Commerce.

Following August, in which exports dropped to the lowest level in six months, September's figures were much more welcome, as exports rose by 3.1% to $187 billion and imports increased only 1.5%, to $228.5 billion. The trade deficit shrunk from $43.8 billion in August, revised, to $41.5 billion in September, marking a 5.1% decrease.

The service sector set a new single month record with $53 billion in exports, breaking the $52.8 billion set in August. Goods exports also set a monthly record, increasing by $5.4 billion to a high of $134 billion in September.

“Although more work remains, today's report shows that we're making historic progress toward achieving President Obama’s goal of doubling our exports by the end of 2014. Total U.S. exports hit a record high in September, as did export levels of both goods and services,” said Acting Commerce Secretary Rebecca Blank, referring to the newly-reelected President Obama's National Export Initiative. “Travel and tourism also continues to be a bright spot, with today’s data showing year-to-date exports 8% ahead of the same period last year. These kinds of increases mean more American jobs—1.2 million jobs were supported by exports between 2009 and 2011.”

Gains in goods exports were driven by increases in industrial supplies and materials ($3.4 billion), foods, feeds and beverages ($1.1 billion) and consumer goods ($0.5 billion). The increase in services exports was chalked up to bumps in travel ($0.2 billion) and other private services ($0.1 billion), which includes business, professional, technical, insurance and financial services.

- Jacob Barron, CICP, NACM staff writer

The free trade agreement (FTA) pending between the United States and Panama will enter into force on October 31.

Letters exchanged this week between U.S. Trade Representative Ron Kirk and Panamanian Minister of Commerce and Industry Ricardo Quijano established the date on which the FTA would go into effect, after officials in each country completed a review of laws and regulations related to the agreement's implementation.

When the FTA enters into force next week, Panama will immediately reduce or eliminate tariffs on U.S. industrial goods, which currently average 7% but can stretch as high as 81%. Furthermore, over 86% of U.S. exports of consumer and industrial products to Panama will become duty-free immediately, including information technology equipment, construction equipment, aircraft and parts, medical and scientific equipment, environmental products, pharmaceuticals and fertilizers.

"This agreement also provides U.S. firms and workers improved access to customers in Panama’s $22 billion services market, including in areas such as financial, telecommunications, computer, express delivery, energy, environmental and professional services," said Kirk. "Panama is one of the fastest growing economies in Latin America, expanding 10.6% in 2011, with forecasts of between 5-8% annual growth through 2017. That adds up to support for more well-paying jobs across the United States."

The FTA is also expected to benefit the U.S. agricultural industry, as U.S. agricultural exports to Panama currently face an average tariff of 15%, with some reaching as high as 260%. Upon entrance into force, the agreement will immediately make nearly half of U.S. exports of agricultural commodities to Panama duty-free, with most remaining tariffs being eliminated over the next 15 years.

- Jacob Barron, CICP, NACM staff writer

A speech delivered this week in Tokyo found Federal Reserve Chairman Ben Bernanke defending the Fed's most recent attempt to jumpstart the economy, while also taking a thinly-veiled jab at China's currency policy.

The Fed's announcement last month to buy $40 billion worth of bonds per month to boost the U.S. raised a number of eyebrows abroad, as the program could pose some general risks to less-developed economies. "Although the monetary accommodation we are providing is playing a critical role in supporting the U.S. economy, concerns have been raised about the spillover effects of our policies on our trading partners," said Bernanke at the seminar titled "Challenges of the Global Financial System: Risks and Governance under Evolving Globalization," cosponsored by the Bank of Japan and the International Monetary Fund (IMF). "In particular, some critics have argued that the Fed's asset purchases, and accommodative monetary policy more generally, encourage capital flows to emerging market economies."

Specifically, Bernanke said that critics argue that these capital inflows cause undesirable currency appreciation, "leading to asset bubbles or inflation, or economic disruptions as capital inflows quickly give way to outflows."

In his attempt to assuage these concerns, Bernanke noted that the effects of these capital inflows on an emerging market doesn't just depend on the Fed, but also on the monetary policy of the country in question. Though he never referred to China by name, his comments seemed aimed squarely at Asia's largest economy, whose name has become synonymous with currency manipulation in the United States.

"In some emerging markets, policymakers have chosen to systematically resist currency appreciation as a means of promoting exports and domestic growth," said Bernanke. "However, the perceived benefits of currency management inevitably come with costs, including reduced monetary independence and the consequent susceptibility to imported inflation."

"In other words, the perceived advantages of undervaluation and the problem of unwanted capital inflows must be understood as a package—you can't have one without the other," he added.

Read a full copy of Chairman Bernanke's comments here.

- Jacob Barron, CICP, NACM staff writer

A slim majority of the named plaintiffs representing merchants in the antitrust lawsuit against Visa and MasterCard over interchange, or "swipe," fees now officially oppose the settlement proposed this summer.

As of last Friday, a grand total of 10 of the 19 plaintiffs in the case announced that they would ask U.S. District Judge John Gleeson to reject the settlement. Affiliated Foods Midwest, Coborn’s, Inc., D’Agostino Supermarkets, Jetro Holdings, Inc. and Jetro Cash & Carry Enterprises, the National Association of Convenience Stores (NACS), NATSO, the National Community Pharmacists Association (NCPA), the National Cooperative Grocers Association (NCGA), the National Grocers Association (NGA) and the National Restaurant Association (NRA) all announced their opposition, hoping to rebuff reports that Visa and MasterCard, along with an ever-dwindling collection of settlement supporters, would ask Gleason to approve the agreement before the end of this week.

These plaintiffs join a growing chorus of other retail and merchant advocates arguing against the settlement, the terms of which allow merchants to pass on their interchange fees to their customers via surcharge. In addition to a recent majority of class plaintiffs, high profile retail groups like the National Retail Federation (NRF) and big-name retailers like Walmart, Target and Lowe's have all indicated their plans to fight the deal.

"The people asking the court to approve the proposed settlement simply do not represent the interests of most merchants, we do," said Hank Armour, president and CEO of NACS."The proposal represents a minority view and must be rejected."

Opponents have repeatedly said that the thing missing from the proposed settlement is a mechanism to allow merchants to challenge how interchange fees are set. Furthermore, the proposal would release Visa and MasterCard from several future antitrust claims and lawsuits, making it harder for merchants to mount any more efforts to fight the interchange process.

Even with preliminary approval, the process of full approval is expected to stretch well into 2013. Should Judge Gleeson side with the opposition, that process could end up taking even longer.

- Jacob Barron, CICP, NACM staff writer

The U.S. Department of Commerce announced this week that total August exports fell $1.9 billion from July down to $181.3 billion, the lowest level in six months. Imports also fell in August, but only by $0.2 billion, resulting in a 4.1% increase in the nation's trade deficit, which widened to $44.2 billion in August from July's revised figure of $42.5 billion.

Responsibility for the 1% decline falls solely on the goods sector, where exports decreased by $2.1 billion between July and August. The service sector saw a $0.2 billion increase in exports, resulting in a monthly all-time record at $52.8 billion. Decreases in the goods sector came primarily from fewer exports of industrial supplies and materials, which fell $1.2 billion in August, and of foods, feeds and beverages, which fell $1.1 billion.

Wider trade deficits are often considered a drag on economic growth as it indicates that U.S. companies are earning less on their overseas sales, while U.S. consumers are spending more money on products manufactured abroad. Nonetheless, exports remain at historically high levels, having grown at an annualized rate of 12.7% over the last 12 months compared to 2009. Total exports over the last year are valued at $2.173 trillion, which is nearly 37.6% above the total level of exports in 2009.

As of August's figures, the top ten buying countries with the largest annualized increases in purchases of U.S. goods, compared to 2009, were Panama (34.9%), Chile (27.8%), Argentina (26.3%), Turkey (26.3%), Russia (25.7%), Hong Kong (25.6%), Peru (25.3%), the United Arab Emirates (21.8%), Ecuador (21.6%) and Venezuela (20.9%).

- Jacob Barron, CICP, NACM staff writer

Small business lending is expected to increase according to the most recent survey of bank risk professionals published by the Fair Isaac Corporation (FICO).

Bankers expressed widespread optimism about the small business lending sector, voting by more than a two-to-one margin that the approval rate for small business loans and the total amount of credit extended to small businesses would increase rather than decrease. More than half of all respondents predicted that the overall supply of small business credit would meet demand, although this could simply be a symptom of weak demand rather than a boost in available credit.

Notably, survey respondents were less positive about small businesses' requests for credit. In the first-quarter survey, a large majority of 61.9% of respondents predicted an increase in the amount of credit requested by small business. This figure increased to 69.1% in the second-quarter survey, but fell hard to 56.5% in this quarter's survey. This is still a positive trend, with a majority of participants expecting increased requests for credit, increased approval rates and increased credit in general, but it's not as positive as many had hoped.

Still, the third-quarter survey, conducted for FICO by the Professional Risk Managers' International Association (PRMIA), didn't leave the banking industry wanting for reasons to be anxious. Concerns in the student loan market were rampant in the survey, with a 61% majority of respondents expecting delinquencies on student loans to increase over the next six months. This marks the fourth consecutive quarter that respondents have predicted a worsening of student loan delinquencies.

Commercial credit risk managers might not have to worry about the threat of student loan defaults, unless they're their own, but the adverse effects on the economy at large from these delinquencies could be potent.

- Jacob Barron, CICP, NACM staff writer
 

NACM's annual survey of credit professionals' top concerns for the coming year is now live on NACM's website. New choices this year include concerns about fraud, competition from companies in developing countries and threat that outsourcing poses to the credit profession in general.

Respondents are invited to choose their top three concerns from the given list, and elaborate freely in the comments section. In-depth analysis of the results will appear in the January 2013 edition of Business Credit.

All participants that provide their contact information will receive .1 Road Map Points and be entered into a drawing for a free teleconference registration. Click here to participate today!

- Jacob Barron, CICP, NACM staff writer

Despite negative job reports, the National Federation of Independent Business' (NFIB's) Small Business Optimism Index gained 1.7 points in August, topping out at 92.9.

Positive expectations included improvements in employment indicators and overall business conditions in the fourth quarter, as well as an increase in companies making plans for capital outlays. However, responses still indicated that few employers consider this to be a good time to expand, and political uncertainty reached a new high as small employers continue to act cautiously when it comes to growing their companies.

Weak sales were also a concern in August, as trends confirmed that consumer spending remains depressed and slowed noticeably in the middle of the year. The net percent of all owners, seasonally adjusted, reporting higher nominal sales over the past three months lost four points, falling to negative 13% after a seven point decline in June. Twenty percent of all respondents still cited weak sales as their top business problem. Historically, this is a high figure, but still pales in comparison to the record of 33% set in December 2010.

Expectations in credit availability were largely unchanged, as 7% of business owners reported that all their credit needs were not met, which is the same as it was in July. An additional 31% reported all credit needs met, and 53% noted explicitly that they didn't want a loan. Financing was the top business problem for only 3% of those surveyed, compared to 23% who cited taxes and 21% who cited unreasonable regulations and red tape.

- Jacob Barron, CICP, NACM staff writer

For more information on the NFIB's latest optimism report, check out this story in this week's eNews.

President Barack Obama announced his administration's latest World Trade Organization (WTO) case against China at a recent campaign stop in the electorally-important state of Ohio.

"Today my administration is launching new action against China—this one against illegal subsidies that encourage companies to ship auto parts manufacturing jobs overseas," said the president. "Those subsidies directly harm working men and women on the assembly line in Ohio and Michigan and across the Midwest. It's not right; it's against the rules and we will not let it stand."

Ohio has been devastated by job losses related to the nation's automotive sector, making a Cincinnati campaign stop a logical place for the president to announce this latest enforcement action.

Specifically the Administration has requested WTO dispute settlement consultations with the Government of China over their auto and auto parts "export base" subsidy program. Under the program, China provides extensive subsidies to auto and auto parts producers located in designated regions, known as "export bases," that meet export performance requirements. According to the president and trade officials, the program appears to provide subsidies prohibited under WTO rules because they severely distort trade, and provide an unfair advantage to auto and auto parts manufacturers based in China.

"The Obama Administration is committed to protecting the rights of nearly 800,000 American workers in our $350 billion auto and auto parts manufacturing sector. We insist upon having a level playing field on which our world-class manufacturers can compete," said U.S. Trade Representative Ron Kirk. "China expressly agreed to eliminate all export subsidies when it joined the WTO in 2001. China benefits from international trade rules and must in turn live up to its international obligations."

Separately, the U.S. also requested a WTO dispute settlement panel to address China's imposition of antidumping and countervailing duties on more than $3 billion in exports of American-produced automobiles. This marks the second step in a process to resolve the matter following the U.S. request for formal dispute consultations in June, which ultimately failed to resolve anything.

The Administration has brought, and won, a number of cases against China since Obama took office, including on China's export restraints on raw materials and a recent case, settled in favor of the U.S., against China's discrimination against American providers of electronic payment services.

- Jacob Barron, CICP, NACM staff writer

The Federal Reserve announced today that it would begin buying $40 billion worth of mortgage-backed securities on a monthly basis in order to boost the nation's lagging economy.

In a release, the Fed cited continued downward pressures on the economy, from both within the nation's borders and abroad, as their reason for instituting a new round of stimulus, which marks the first time since 2008 that the bank has made an open-ended commitment to buying government securities.

"Information received since the Federal Open Market Committee (FOMC) met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated," said the Fed. "The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook."

Furthermore, the Fed also decided to keep the target range for the federal funds rate at 0-0.25%, and currently anticipates that exceptionally low levels for the rate should be expected, and considered necessary, at least through the middle of 2015.

Along with the bank's decision to make $40 billion worth of bond purchases per month, the FOMC also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities back into agency mortgage-backed securities. Collectively, these two policies will increase the FOMC's holdings of longer-term securities by about $85 billion each month through the end of 2012.

"These actions should put downward pressure on longer-term interest rates, support mortgage markets and help to make broader financial conditions more accommodative," said the Fed.

- Jacob Barron, CICP, NACM staff writer

The U.S. exported $185 billion in goods and services in June, according to data released by the Commerce Department, marking an all-time monthly high. The previous record, set just three months prior in March 2012, was $184.4 billion.

"This is the highest value ever recorded for the export of U.S. goods and services," said Export-Import (Ex-Im) Bank Chairman and President Fred Hochberg. "Exporting is paying off for American workers at home, and it is essential we continue to cultivate business overseas to support the U.S. economy."

Over the last 12 months, U.S. exports of goods and services have totaled $2.165 trillion, which is 37.1% above the 2009 total. Since then, U.S. exports have been growing at an annualized rate of 13.5%. Major export markets with the largest annualized increases in purchases of U.S. were Panama (38.1%), Turkey (29.5%), Argentina (29.1%), Hong Kong (28.3%), Chile (28.1%), Russia (26.4%), Honduras (26.1%), Peru (25.5%), Brazil (22.7%) and Ecuador (22.1%).

Despite the reliable positivity of exports over the last several quarters, NACM Economist Chris Kuehl, PhD noted that a number of rare factors helped boost June's figures, and that this type of growth might soon be coming to an end. "The one-off developments include a dramatic burst of activity in a couple of traditionally volatile areas—pharmaceuticals and gems. Together these sectors accounted for half the consumer goods gain," said Kuehl. "If one looks at these motivators for the good month, it is pretty obvious that this is not all that sustainable."

Placing U.S. export figures in greater risk is the fact that other major export countries have seen drastic declines. "If there are export declines in Germany, Japan, Korea, China and Brazil," asked Kuehl, "can the U.S. continue to be the outlier that is seeing expansion?"

- Jacob Barron, CICP, NACM staff writer

To learn more about how to use exports to grow your company, visit FCIB's website at www.fcibglobal.com. For more information on Ex-Im Bank's export support programs, be sure to tune into FCIB's upcoming webinar, "Financial Tools for Export Success," led by Sharyn Koenig, director of Ex-Im's southeast regional export finance center and minority and women-owned business outreach.
 

Congress adjourned for its annual August recess last Friday without passing a bill to approve permanent normal trade relations (PNTR) with Russia.

This means that Russia will officially join the World Trade Organization (WTO) on August 22, and be well within its rights to increase tariffs on U.S. goods entering the country. Since Congress won't return to work until September 10, the failure to pass a bill before leaving Capitol Hill puts U.S. exporters at a competitive disadvantage in Russia, the world's ninth largest economy, at least until PNTR can be approved.

Immediate passage after the conclusion of the August recess isn't exactly a guarantee either, as Congress is expected to be preoccupied with looming defense cuts and the sequestration details of last year's debt ceiling agreement.

In the final week before the recess, neither chamber of Congress even tried to schedule a vote on two bills that would've approved PNTR with Russia by repealing the Jackson-Vanik amendment, a Cold War regulation that made U.S. preferential tariff rates for Russia products conditional on the country allowing Jews and other minorities to emigrate freely. The amendment is regularly suspended with little fanfare, but its presence on U.S. books allows Russia, under WTO rules, to discriminate against U.S. products until the regulation is eliminated.

Each version of the PNTR bill has been coupled with a version of the Magnitsky Act, named for anti-corruption lawyer Sergei Magnitsky who died in 2009 under mysterious circumstances after serving a year in Russian prison. The House's version would deny visas and freeze the assets suspected of involvement in Magnitsky's death, while the Senate's version would take a much broader approach, allowing the law to be applied to human rights violators outside of Russia and beyond the scope of the Magnitsky case.

Some iteration of the Magnitsky legislation was considered a prerequisite for any bill approving PNTR, as lawmakers were wary of being perceived as having given Russia a free pass on trade without any penalties related to the country's human rights record, especially in an election year. Analysts have noted, however, that PNTR has a time limit, while either version of the Magnitsky Act does not. Congress could easily have approved PNTR ahead of Russia's accession to the WTO and addressed the Magnitsky legislation at a later date.

- Jacob Barron, CICP, NACM staff writer
 

Opposition to the proposed settlement in the credit card interchange case continues to grow, as another major plaintiff in the case rejected the agreement this week.

The National Association of Convenience Stores (NACS) has led the opposition, joined by Walmart, Target, SIGMA, an association representing independent motor fuel marketers and chain retailers, and now the National Grocers Association (NGA), which is among the most prominent of the class action plaintiffs in the original case.

NGA cited the settlement's lack of a mechanism to allow merchants to have a say in how interchange fees are set as their primary reason for joining the opposition.

"NGA joined the lawsuit on behalf of its independent retail grocer members over seven years ago to bring about real reform of the anticompetitive credit card swipe fee system. This proposed settlement agreement fails in this regard by allowing Visa and MasterCard to continue their dominant anticompetitive practices," said NGA President and CEO Peter Larkin. "Meanwhile, merchants and consumers will continue to pay exorbitant swipe fees with no hope of reform. NGA's members are also concerned about Visa and MasterCard's ability to use their dominance to prevent emerging and innovative lower cost payment options."

Interchange, or "swipe," fees are currently set unilaterally by card processors like Visa and MasterCard. While the proposed settlement provides for a $6 billion payment to retailers and allows merchants to pass on their future processing costs to their customers, it does not provide for transparency in the way that the fees themselves are set, meaning Visa and MasterCard could continue to charge fees at whatever rates they see fit without many options for recourse from merchants or buyers.

"The proposed settlement represents a small fraction of the $350 billion in swipe fees the card companies have charged merchants, and ultimately consumers, for the last seven years. This agreement only ensures that the card companies will continue to fix hidden swipe fees and be able to increase them at will for years to come," said Larkin.

Despite the intensity of the opposition, resistance to the settlement could prove futile. The opposition by trade groups means only that the groups themselves reject the settlement, not that their members do. Merchants will individually have the ability to formally opt out of the settlement should it be approved and if merchants representing 25% of Visa and MasterCard's credit card sales do choose to opt out of the agreement, the card processors will be able to cancel it. Still, even with retailers like Target and Walmart and trade groups like NACS and NGA, the opposition is likely to fall well short of that 25% threshold, meaning the settlement would be approved, Visa and MasterCard wouldn't have to make any further concessions, and individual merchants would be allowed to opt out of the agreement at their own risk.

Stay tuned to NACM's blog and eNews for more updates.

- Jacob Barron, CICP, NACM staff writer

The National Association of Convenience Stores (NACS) was the first to reject a proposed settlement in a case against Visa and Mastercard over credit card interchange fees. As time wears on, however, it looks like they won't be the last.

Most recently, the association has been joined by retail giant Target in their opposition to the proposed settlement, for ostensibly the same reasons cited by NACS in their original complaint. "Target believes the proposed interchange fee settlement is bad for both retailers and consumers," said the company in a statement. "The proposed settlement would perpetuate a broken system, restrict retailers from any future legal action and offer no long-term relief for retailers or consumers. In addition, Target has no interest in surcharging guests who use credit and debit cards in order to allow Visa and Mastercard to continue charging unfair fees. We will continue to explore our options while working toward a solution that represents true reform."

NACS has held that the settlement, which has the support of the defendants as well as the court-appointed class counsel for the plaintiffs, fails to address the lack of transparency in the process by which Visa and Mastercard set these fees. "Not only does the proposed settlement fail to introduce competition and transparency into a clearly broken market, it actually provides Visa and Mastercard with the tools to continue to shield swipe fees from market forces," said NACS Chairman Tom Robinson upon announcing NACS' rejection of the settlement earlier this month.

As a result of their opposition, and the fact that they currently stand alone among the 19 class action plaintiffs in rejecting the proposed settlement, the lawyers representing the plaintiffs have petitioned the court to have NACS dropped as their client, arguing that they can't reconcile the interests of their other clients with NACS' "divergent objectives." NACS has until tomorrow to respond to the motion.

Responding to the news that Target also opposed the settlement, NACS said that they expected many other class action plaintiffs to follow Target's lead in the coming weeks. "It's a bad deal and the growing backlash against the terms of the proposed settlement that we are hearing from retailers confirms that this is far from a done deal," said NACS Senior Vice President of Government Relations Lyle Beckwith.

NACS also cautioned retailers to tread carefully in the coming weeks, as Beckwith suggested that they may receive unsolicited sales calls offering them a piece of the more than $6 billion in settlement funds in exchange for their support of the proposed agreement. "It wouldn't surprise me at all if retailers start getting calls," he noted. "We strongly recommend that retailers keep their options open before signing any agreements with third parties to obtain settlement funds."

Stay tuned to NACM's blog and eNews for further updates.

- Jacob Barron, CICP, NACM staff writer

Not all merchant groups are wild about the proposed settlement in the class action case against Visa, Mastercard and a group of large U.S. financial institutions.

The National Association of Convenience Stores (NACS), one of several plaintiffs that originally filed the suit in the Eastern District of New York, unanimously rejected the proposal, citing a litany of inadequacies that the agreement fails to address. Chief among them is the fact that the settlement doesn't include any means to alter the process by which interchange fees are established.

"Not only does the proposed settlement fail to introduce competition and transparency into a clearly broken market, it actually provides Visa and Mastercard with the tools to continue to shield swipe fees from market forces," said NACS Chairman Tom Robinson, president of Santa Clara, California-based Robinson Oil Corp. "This proposed settlement allows the card companies to continue to dictate the prices banks charge and the rules that constrain the market including for emerging payment methods, particularly mobile payments. Consumers and merchants ultimately will pay more as a result of this agreement—without any relief in sight."

NACS argued that without any mechanism that would force Visa and Mastercard to constrain their interchange rates according to market conditions, the agreement would allow the two credit card giants to continue raising rates as they saw fit, the net result of which will be to make merchants pay for their own settlement.

"Even the monetary agreement in this proposal is a mirage," said Robinson, referring to the more than $6 billion that the defendants will have to pay to retailers as part of the settlement. Despite the fact that the payment will be the largest antitrust settlement in U.S. history, NACS noted that this amounts to less than two months' worth of interchange fees based on the estimated $50 billion in swipe fees collected by the credit card companies on an annual basis. "Merchants won't get these funds for years and will have paid more than that through increased swipe fees long before they see those funds," Robinson added.

It's unclear what NACS' opposition means for the still-pending court approval of the settlement, which has so far been agreed to by all defendants, as well as by the court-appointed class counsel for the class action plaintiffs.  "NACS does not accept this proposed settlement and we reserve the right to fight it if other class representatives do accept it," said NACS President and Chief Executive Officer Henry Armour. "There is plenty of time for merchants to make thoughtful decisions related to this proposed settlement. We hope and expect that, as they have the time to review it, many other merchants including class representatives will decide to reject this proposal."

Stay tuned to NACM's blog and eNews for more updates and analysis on the settlement.

- Jacob Barron, CICP, NACM staff writer

Merchants that accept credit cards for payment may soon be able to pass on interchange fees to their customers in the form of a surcharge.

Visa, Mastercard and a group of large U.S. financial institutions reached a memorandum of understanding (MOU) last Friday, resolving claims from a 2005 class action lawsuit brought by a group of U.S. retailers over the fees charged on merchants to accept credit cards. In addition to providing for a $6 billion payment to retailers, the MOU also provides for policy changes that will allow sellers to charge customers more for paying via credit card.

Though it has yet to be approved by the U.S. District Court for the Eastern District of New York where the case was filed, the MOU has been agreed to by all defendants and the court-appointed class counsel for the merchants, meaning court approval is likely to be a formality at this point.

Interchange fees have long been a thorn in the side of any merchant accepting payment via credit cards, whether they sell to consumers or other businesses. In essence, the fee is a percentage of the total value of a transaction that, at least until the settlement is expected to enter into force early next year, had to be paid solely by the merchant. The fees fall especially hard on smaller companies, who lack the technical expertise necessary to navigate through the notoriously complicated process by which these rates are established.

Under the terms of the settlement, however, these companies will be able to recover their interchange fees from their customers, with some notable limitations. For example, merchants using a surcharge to offset their cost of acceptance can only charge a fee equal to what they pay to accept credit cards. They must also disclose the surcharge to the buyer at the point of entry, point of sale and on the receipt.

Additionally, the settlement does not apply to debit cards, and does not apply in the 10 states where surcharging remains illegal: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.

Stay tuned to NACM's blog and this week's eNews for further updates.

- Jacob Barron, CICP, NACM staff writer