After seven years of antitrust litigation and negotiations between Visa, MasterCard and some of the country”™s largest retailers and trade associations, a $7.2 billion settlement over so-called “swipe fees” was filed Oct. 19 with the U.S. District Court in Brooklyn.
However, with 10 of the 19 retail chains and trade groups comprising the plaintiffs now saying they are against the settlement, opponents are predicting a prolonged battle over an agreement that, if approved, would be the largest federal antitrust settlement in U.S. history.
Connecticut retailers are largely opposed to the settlement on the grounds that it does little to increase transparency and that one of its key provisions is nullified by an existing Connecticut statute, said Timothy G. Phelan, president of the Connecticut Retail Merchants Association Inc.
“We”™d like to see more of that transparency and competition in the system,” Phelan said. “What we mean by that is, the setting of rates is a fairly extensive and detailed and complicated process in which the retailers have no input and cannot counter-offer or anything like that.”
The proposed settlement, which was initially reached in July before being filed a week ago with Judge John Gleeson of the U.S. District Court for the Eastern Division of N.Y., would apply to the approximately 8 million merchants that accept Visa Inc. and MasterCard Inc. credit cards.
Included in the proposal is a $6.05 billion payment and $1.2 billion in temporary fee reductions. The deal would allow merchants to charge customers extra fees, or surcharges, for using certain cards, and would release Visa and MasterCard, the latter of which is based in Purchase, N.Y., from a series of antitrust claims and future lawsuits over interchange, or swipe, fees.
Under state law, however, retailers are prohibited from adding a surcharge for customers who use certain credit cards, Phelan said.
“The problem for Connecticut retailers is that Connecticut law doesn”™t allow a retailer to surcharge,” Phelan said. “So this settlement doesn”™t help us at all.”
Whereas regulatory agencies monitor insurance rates and fees and can limit premium increases if they are seen as being excessive, merchants have no choice but to accept swipe fee increases, Phelan said.
“We just have to hold our breath every year and hope those rates ”¦ don”™t go up too high and we”™ll be able to handle it,” he said. “Retailers are in a tough position when it comes to swipe fees. Consumers are now using them more and more, especially cards that are tied to rewards points. …You really can”™t operate a retail business today without accepting credit cards.”
Swipe fees cost consumers close to $30 billion a year, according to the National Retail Federation (NRF), which is not one of the parties involved in the lawsuit but has expressed its opposition to the settlement filed Oct. 19.
“The settlement still does virtually nothing to protect retailers or their customers from the abuses of the card industry, and it attempts to silence any objections for years to come,” said Mallory Duncan, senior vice president and general counsel of the NRF, in a statement.
Duncan argued the settlement does not reflect the wishes of all of the plaintiffs.
“Retailers would rather take their chances in court than accept this one-sided swindle written by the card industry for the card industry,” he said.
The Electronic Payments Coalition (EPC), which represents the likes of Visa, MasterCard, Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. Inc. and other major financial industry representatives, defended the settlement.
“The settlement is the culmination of seven years of litigation, two full years of mediation, and, with the consent of all parties, the direct oversight of Judge Gleeson,” said Robert Stolebarger, partner of New York City law firm Bryan Cave L.L.P. and antitrust council for the EPC.
