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Tuesday, September 18, 2018

Mastercard, Visa offer new terms to settle interchange lawsuit, NRF balks

Visa and Mastercard are one step closer to ending a years-long legal battle over merchant interchange. The two card brands have agreed to pay $6.2 billion to settle portions of a class action lawsuit originally filed by millions of retailers in 2005.

But retailers may not buy into it. The National Retail Federation is complaining the proposed new settlement agreement doesn’t go far enough; it wants to see reforms in how interchange is set.

Terms of the proposed agreement – revealed in Sept. 17, 2018, filings with the Securities and Exchange Commission – amend financial terms of a 2012 settlement in the original case, but do not address sought after changes to network rules. The 2012 settlement, which had been approved by a U.S. District Court judge, was rejected in 2016 by the U.S. Court of Appeals for the Second Circuit.

The Appeals Court ruled that merchants in the case had been “inadequately represented” and sent the case back to the District Court for reconsideration. The proposed new settlement still must be approved by the District Court.

Visa said in a statement that its share of the proposed settlement total is $4.1 billion, which will be covered by funds previously allocated to settle the case. “No additional funds are required for this class settlement,” the company stated.

Merchants, led by mega-retailers like Walmart and merchant trade associations, had claimed in their original lawsuit that Mastercard and Visa, which at the time were owned by banks, were inflating interchange fees in violation of federal anti-trust laws. They also challenged several Visa and Mastercard rules, including a ban on surcharging and honor-all-cards requirements.

Will merchants take cue from NRF?

The original settlement called for a distribution of $7.25 billion to merchants, but thousands of merchants, including Walmart, balked at the settlement, refusing to take their share and setting the appeals process in motion. After those merchants opted out, the price tag on the settlement shrank significantly to about $5.7 billion, according to published reports at the time.

In addition to striking down the 2012 settlement, the Appeals Court split the original case into two separate lawsuits, one focusing on monetary damages related to interchange and the other focused on card brand rules. The proposed settlement revealed on Sept. 17 only addresses the interchange case.

“After years of thoughtful negotiation, we are pleased to be able to reach this agreement and move forward in our partnership with merchants to provide consumers convenient, reliable, secure ways to pay,” said Kelly Mahon Tullier, Visa executive vice president and general counsel. “This outcome benefits all parties and enables us to focus more of our resources and attention to building the future of digital commerce together.”

Stephanie Martz, senior vice president and general counsel at the NRF, was less optimistic. “The monetary settlement doesn’t solve the problem. Swipe fees [interchange] cost retailers and their customer tens of billions of dollars a year and have been skyrocketing for nearly two decades,” Martz complained. “Ending the practices that led to these anti-competitive fees is the only way to give merchants and consumers full relief once and for all.”

Matz noted that the proposed new settlement agreement does address a key concern of merchants who opted out of the original settlement: a lifetime ban on lawsuits related to interchange. Under the new agreement, merchants would face a five-year ban on suing the card companies over interchange.

“NRF will closely watch the next phase of settlement discussions, which merchants hope will make significant changes in the way Visa and MasterCard set the complex matrix of [interchange rates] banks charge merchants,” the trade association said in a statement. end of article

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