Settlement or 'Surrender'?
Published in CSP Daily News
NRF calls deal "failure"; cards ask judge to declare swipe fees "lawful, pro-competitive"
BROOKLYN, N.Y. -- With the May 28 deadline passed for merchants to object or opt out of the $7.25 billion settlement with Visa and MasterCard in an antitrust lawsuit over credit-card interchange or "swipe" fees, the next court date retailers must await is the Sept. 12, 2013, fairness hearing, to be held in the U.S. District Court for the Eastern District of New York in Brooklyn.
On Tuesday, however, the National Retail Federation (NRF) and a broad cross-section of retailers asked a federal judge to reject the proposed settlement, calling it a "surrender" that does nothing to address the "evil" of price fixing by Visa, MasterCard and their banks.
"This is an empty settlement," NRF senior vice president and general counsel Mallory Duncan said. "It fails to address the price fixing that harms merchants and their customers, it takes away retailers' legal rights to ever try again, and it offers virtually nothing in return. It should be tossed out of court as the failure that it is."
"What the class plaintiffs have agreed to is not a settlement--it is surrender," NRF said in a brief (see File Attachments, below) filed with U.S. District Judge John Gleeson in Brooklyn. "The settlement fails to address the core evil that motivated this class action and that continues to plague the industry: the outsized economic power of and the manipulation of interchange rates by Visa, MasterCard and their constituent banks."
NRF and retailers who supported the brief have opted out of money offered under the settlement because of accompanying restrictions on future legal action, they said.
"Retailers simply cannot understand how the American system of justice can permit class-action lawyers whom they have never met and who know nothing about their business to craft a 'settlement' that will preclude them forevermore from seeking redress on future losses without so much as offering them the opportunity to opt out," NRF said. "It gives the credit-card networks carte blanche to set and manipulate interchange rates going forward without fear of future private suits. There is nothing that the credit card networks could give that is worth this unbridled loss of control."
The NRF opposes the settlement because it fails to reform the price-fixing system under which Visa and MasterCard set the schedule of swipe fees followed by the thousands of banks that issue their credit cards, or to introduce transparency that would lead to competition to lower the fees. Rather than lowering the fees, the card companies have proposed that the fees be passed along to consumers in the form of a surcharge, even though most major retailers have rejected surcharges as the opposite of what they have sought during the years-long fight over swipe fees. Despite a few "illusory" changes in credit-card rules, NRF said the settlement does nothing to lower the fees or to keep them from increasing in the future.
Retailers who did not opt out of the monetary portion of the settlement--and thereby became fully bound by its restrictions--will be eligible for a share of $7.25 billion. But the figure amounts to less than three months' worth of swipe fee charges, and the small retailers hit hardest by the fees could have unwittingly given up their rights for as little as a few hundred dollars, said NRF.
Rather than being brought by the retail industry as a whole or by a majority of major retailers, the suit was filed in 2005 by six trade associations and 13 retail companies, most of them individual stores or small chains. The settlement was drafted without input from other retailers, and was ultimately rejected by a majority of the original plaintiffs, including all of the associations, when it was unveiled last summer. NRF is not a party to the lawsuit, but has been part of the retail industry's opposition to the settlement.
On Friday, Visa and MasterCard asked a federal judge to declare that swipe fees do not violate antitrust law, reported Reuters. The complaint asks Gleeson to declare that the fees are lawful and pro-competitive. If Gleeson rules that the swipe fees do not violate antitrust law, it could prevent them from pursuing separate damage actions.
It could also affect the ability of other retailers who opted out to seek damages over swipe fees.
"A declaration in plaintiffs' favor against the defendants is necessary to prevent the continuation of endless, wasteful litigation between defendants and plaintiffs," the complaint said.
If granted final approval, the settlement would be the largest private antitrust settlement in U.S. history.
For more details, go to the payment card interchange fee settlement official court-authorized website, www.paymentcardsettlement.com.