Retailers Fighting Back After $5.7 Billion Credit Fees Settlement

Home Depot (NYSE: HD), Target (NYSE: TG), Macy’s (NYSE: M) and a host of other merchants and retail organizations are appealing a $5.7 billion settlement in the long-running court battle between retailers and card issuers over interchange fees. On December 13, Visa and MasterCard agreed to settle the lawsuit filed by retailers in the U.S. District Court for the Eastern District of New York in Brooklyn. The $5.7 billion settlement is considered to be the largest antitrust settlement in history. Merchants sued Visa and MasterCard back in 2005, saying the companies fix the fees charged to merchants each time customers use their credit or debit cards. Card processors’ systems also prevent merchants from steering customers to less expensive forms of payments, according to the suit. Credit card swipe fees cost merchants and their customers an estimated $30 billion a year and have tripled over the past decade, according to the National Retail Federation. As a result, retailers are rightfully upset over the court’s decision. The settlement "is woefully inadequate," according to a statement from the National Association of Convenience Stores, which plans to appeal. The National Retail Federation (NRF) is conferring with its members, but “I fully expect we will appeal”, NRF Senior Vice President and General Counsel Mallory Duncan told “We are very disappointed that this deeply flawed settlement has been approved. It is not supported by the retail industry and would do nothing to reduce swipe fees or keep them from rising in the future,” said Duncan in an NRF statement. “The settlement permanently ties the hands of thousands of businesses who wanted nothing to do with this misguided case, and a decision to approve it violates established law and common sense. We are reviewing the ruling and will take whatever steps are necessary to protect the rights of merchants and safeguard the pocketbooks of their customers.” However, U.S. District Judge John Gleeson believes that the settlement will help retailers educate consumers about hidden credit card fees. "For the first time, merchants will be empowered to expose hidden bank fees to their customers, educate them about those fees and use that information to influence their customers' choices of payment methods," Gleeson wrote. The agreement permits merchants to pass on their interchange fees to card-paying customers via a surcharge, and requires Visa and MasterCard to negotiate with merchant buying groups, something they have not done before, the Minneapolis Star Tribune reported. Although retailers can pass on the swipe fee charges now, very few are doing so. It also calls for the defendants to pay cash damages to the more than 7 million affected retailers, although the individual payments will be a small fraction of the total interchange fees the retailers have paid over the years, the paper reported. Unlike retailers, payment processors are satisfied with the ruling. "The long political conflict over interchange fees is finally over, settled by a well-established legal process, which brought together retailers and the card industry for a negotiated resolution,” the Electronic Payments Coalition, which includes credit unions, banks and payment card networks, said in a statement. “After years of mediation, dozens of meetings and millions of pages of evidence, the parties involved have willingly agreed to settle their dispute. This settlement is in the best interest of all involved parties and that has been proven today with the court's final approval." Earlier this year, around 8,000 retailers – including Amazon, Walmart and Target – opted out of the damages portion of the settlement. “These retailers were primarily concerned that a litigation release in the settlement could ban merchants from suing card companies over the recently contested rules or over any new rules that might arise in the future — especially in the face of new technologies,” CSPnet reported. “For instance, these releases could one day limit up-and-coming mobile payment technology in the retail industry.”