Swipe-Fee Settlement Ruling Due

Published in CSP Daily News

"Checkout fee" also kicks in; most retailers not expected to institute surcharges

NEW YORK -- The U.S. Court of Appeals for the Second Circuit will rule Jan. 29 on a motion by NACS and others to appeal preliminary approval of the proposed swipe-fee settlement with Visa Inc., MasterCard Inc. and several financial institutions announced July 13, 2012.

The majority of named plaintiffs in the case--including NACS--have rejected the terms of the deal and will continue to do so, the association said.

This ruling is another is a series of steps that need to be made before the $7.2 billion proposed settlement takes effect, reported NACS.

A U.S. appeals court in early December denied a request by Home Depot Inc. and other merchants to expedite the appeals process in an ongoing battle over the class-action settlement potentially worth $7.25 billion.

The decision was part of the legal battle between some of the country's largest merchants and credit-card companies over fees retailers pay each time a customer pays with a card, known as interchange or swipe fees.

The litigation, filed in 2005, alleged Visa and MasterCard conspired with large banks that issue credit cards, including Bank of America Corp. and J.P. Morgan Chase & Co., to set swipe fees at arbitrarily high levels. Visa and MasterCard set the fees, which are collected by the banks as revenue.

The companies reached a settlement in July that would result in payments totaling $6.05 billion going to a class that could include up to eight million merchants as well as a temporary reduction in the fees worth $1.2 billion. Visa and MasterCard have also agreed to change rules that merchants have long argued are unfair, including a ban against surcharging customers who pay with credit cards.

The rule changes set to take effect in January as a result of receiving preliminary approval in November by U.S. District Court Judge John Gleeson. Large retailers, including Home Depot, Wal-Mart, Target and several trade groups, including the National Retail Federation (NRF), have lobbied against the settlement, arguing it grants overly broad releases from future litigation to Visa and MasterCard and will do little to stop swipe fees from increasing in the future.

( Click here for previous CSP Daily News coverage of the swipe fee issue.)

Meanwhile, Sunday, Jan. 27, marked the first day that retailers could theoretically surcharge customers for certain credit-card transactions, said NACS. Surcharging, which some are calling a "checkout fee," is only allowed under very specific conditions, may be very difficult (or impossible) for retailers that accept American Express and is illegal in 10 states (California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas), according to the association.

Some retailers and merchants have lambasted the agreement, saying it puts the "wrongdoings of credit card issuers" on the consumer, according to a CNN report. Some retailers said the new tax threatens merchants' priority to keep prices low for customers.

"We have discussed the settlement with many, many merchants, and not a single merchant we have spoken to plans to surcharge," Craig Shearman, spokesperson for the NRF, said in a statement. "The bottom line is that very few retailers would be able to surcharge under the settlement, and that the vast majority don't want to surcharge even if they could."

Retailers are allowed to charge their customers a fee that is roughly equal to the amount that they are charged in swipe fees, which ranges between 1.5% and 4%, based on a variety of factors. The fee is not applicable to debit cards and prepaid cards. If merchants want to assess a surcharge, they must first communicate their intent to Visa and/or MasterCard at least 30 days prior to implementing a surcharge program at either the credit-card product or brand level (but not both). They must also provide prominent notices about these fees--both at the entrance and register. The surcharge amount also must be identified separately on the receipt.

NACS said it is not likely that retailers will impose the charge because under the agreement, retailers who surcharge on Visa or MasterCard transactions also must surcharge for American Express transactions if they also accept that card; however, American Express rules state that retailers must surcharge all card types if they surcharge--including debit. That would undercut debit reform and create pressure for merchants to drop American Express.

Because the rules require merchants to give 30 days' notice to Visa and MasterCard before surcharging, the card companies will be able to put pressure on merchants to stop them from ever doing it, said NACS.

Merchants that accept PayPal in their stores will not be able to surcharge or will be forced to violate their agreements with PayPal and surcharge for its cards, too, the group said.

Retailers' notices to consumers about the surcharges must say that the retailer is imposing the surcharge--not that the surcharge is the result of over-inflated fees set by the credit-card companies on behalf of banks that will not compete on price. These misleading notice requirements are designed to make consumers blame retailers, and to dissuade retailers from surcharging, NACS said.

Most retailers are wary of surcharging to begin with, for a variety of reasons, chiefly competition, added NACS. This is especially true of gas stations, where price competition is fierce. NACS has repeatedly surveyed customers about their price sensitivity at the pump and has found that nearly half of all consumers would change their behavior to save five cents per gallon. NACS said is not aware of any retailer that is instituting a surcharge program.

It is important to note that discounts for cash or debit-card payments are widespread, but these are discounts, not surcharges, said NACS.

NACS has posted a Q&A on Credit-Card Surcharging that includes links to Visa and MasterCard requirements and restrictions.