Swipe-Fee Showdown

Published in CSP Daily News

Will one of the more intractable disputes in U.S. business history finally be resolved?

NEW YORK -- It took seven years to reach a proposed $7.25 billion antitrust settlement between retailers and Visa Inc., MasterCard Inc. and the banks that issue their cards. It took another year to feud over the agreement. On Thursday, supporters and opponents will sound off in a New York courtroom as part of what's likely to be the final showdown over claims that the credit-card companies broke antitrust laws by fixing billions of dollars in interchange or "swipe" fees that merchants pay each year, said The Star Tribune.

Major retailers have objected to the settlement as perpetuating a broken payments system, with many backing out of it altogether. Some, including Target Corp., are taking new legal action.

U.S. District Judge John Gleeson, in charge of approving the historic settlement, will probably make a decision in 30 to 120 days.

Visa and MasterCard, who have long denied any wrongdoing, are expected to repeat their position that the retailers don't have a strong case, and that the costly litigation simply needs to end.

Lawyers for Target Corp. and Home Depot Inc. are reportedly on the speaking list. Also addressing the court will be Jeffrey Shinder from Constantine Cannon in New York, which represents the 10 named plaintiffs in the class-action lawsuit and 53 absent class members who objected, a group that includes many of the country's biggest retailers such as Starbucks Corp., Best Buy Co. Inc., Nike Inc. and Lowe's Cos. Inc.

The number of retailers who opted out accounted for more than 25% of the total credit-card volume from 2004 through 2012, according to MasterCard and a major retail trade group, a critical threshold. The level meant the defendants--Visa, MasterCard and 13 card-issuing banks including Wells Fargo & Co.--could have pulled out of the settlement. They did not.

The exodus of retailers reduced the total cash recovery to about $5.74 billion, the report said.

The settlement abolishes the "no surcharge" rules Visa and MasterCard had, allowing retailers to pass their fees on to consumers should they choose to do so, and it allows merchants to form buying groups to negotiate better interchange rates. It also gives retailers cash, albeit not much. Payments are expected to total about two to three months' worth of what they paid in interchange fees.

Major retailers opted out in droves, the report said. The objectors argue the settlement perpetuates a broken system and violates their constitutional rights by limiting their ability to sue Visa and MasterCard for similar unfair practices, and other things, going forward.

The Merchants Payments Coalition, a group of retailers focused on the rising cost of swipe fees, issued a statement Tuesday suggesting the disagreements are still far from over:

"Whether or not the court accepts this proposed settlement, the problems that merchants face--which triggered the initial litigation--will remain.  The major credit card companies that together control 80% of the market will continue to set credit-card swipe fees in a manner that amounts to price-fixing. There will be no competition and no transparency--key elements to a functional marketplace.

"Swipe fees drain $50 billion a year from the bottom line of merchant businesses and consumers. Reducing these costs will help small businesses--the engine of our economy--to lower prices and increase consumer buying power which is what we need to kick-start economic growth.

"As mobile payment systems continue to develop, it is critical that these innovations evolve in a way that improves cost efficiencies to the benefit of both merchants and consumers. Strong congressional and regulatory oversight and possible future legal action will be needed to ensure that the same price-fixing system controlled by the same two entities is not carried over to these new, emerging technologies, stifling the potential to achieve consumer benefits and marketplace efficiencies."

Click here to view the full Star Tribune report.