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Monday, July 30, 2012

Major retailers reject proposed interchange settlement

Some of the biggest retailers and retail associations in the country are rejecting their own attorneys' proposed settlement of a class action antitrust lawsuit brought against card companies Visa Inc., MasterCard Worldwide and a number of card issuing banks.

Wal-Mart Stores Inc., Target Brands Inc., the National Association of Convenience Stores and the National Grocers Association are all publicly repudiating the $7.25 billion settlement proposal submitted by attorneys representing their class to the United States District Court for the Eastern District of New York on July 13, 2012.

The merchants are choosing to reject the settlement even though their attorneys believe it to be the largest offer in the history of Sherman Act antitrust litigation. The merchants said they intend to continue to press antitrust claims against the card companies in an effort to create what they believe would be a fairer interchange fee system.

The settlement

The law firms of Robins, Kaplan, Miller & Ciresi LLP.; Berger & Montague, P.C.; and Robbins, Geller, Rudman & Dowd LLP were appointed by the District Court in 2005 to represent the nearly 7 million merchant plaintiffs participating in the class action. The merchants' antitrust action declares Visa, MasterCard and the banks collude to unfairly set interchange fees.

The settlement proposal calls for the defendants to pay $6.05 billion for past damages. The card companies would also agree to sustain a temporary reduction of 10 basis points in their interchange rates to add an additional $10 billion in settlement value for merchants. Visa estimates it will pay $4.4 billion if the settlement is approved. MasterCard said it will pay $790 million. The balance of the settlement would be paid by the defendant banks.

In addition, the settlement would allow merchants more freedom to disclose card fees, impose surcharges to recapture those fees and steer customers to less expensive payment options. "These new rules will give merchants the tools they need to put pressure on the credit card networks to lower interchange or 'swipe' fees," said Patrick Coughlin, an attorney with of the Robbins, Geller firm.

The retailers' views

The retailers dissenting from the settlement insist the interchange system is "broken" and the proposed settlement payment, which amounts to less than two months' worth of interchange fees (based on an estimated $50 billion in such fees collected annually), fails to make the system either more competitive or more transparent. They also feel the settlement allows defendants to continue anti-competitive behavior.

"This proposed settlement allows the card companies to continue to dictate the prices banks charge and the rules that constrain the market, including for emerging payment methods, particularly mobile payments," NACS Chairman Tom Robinson said.

The NACS noted there is nothing in the agreement that would prevent Visa or MasterCard from raising rates to a point where merchants would be paying for their own settlement.

Wal-Mart issued a statement calling on "all merchants to put consumers first and reject the settlement." The company also said the proposed settlement "would not structurally change the broken market or prohibit credit card networks from continually increasing hidden swipe fees."

Target stated, "Target has no interest in surcharging guests who use credit and debit in order to allow Visa and MasterCard to continue charging unfair fees."

The NGA hired the firm of Constantine Cannon LLP to represent it going forward. It is the firm that negotiated a $3.4 billion settlement in 2003 to resolve similar antitrust claims against Visa and MasterCard. That settlement resolved all antitrust claims against the companies up to January 2004. The new proposed settlement would cover all antitrust actions, past and future, occurring after January 1, 2004.

Payments industry perspectives

Visa General Counsel Joshua Floum said Visa agreed to the settlement to end the "distraction" of the litigation for everybody involved. Joseph Saunders, Visa Chairman and Chief Executive Officer, said, "We believe settling this case is in the best interests of all parties. We are comfortable with the terms, which we do not anticipate will impact our current guidance."

Noah Hanft, MasterCard General Counsel and Chief Franchise Executive Officer, stated, "Although we have strong defenses to all claims, a settlement avoids years of litigation and uncertainties that are inherent in such cases. We believe that today's settlements should resolve all issues with the merchant community."

Payments industry associations offered support for the proposed settlement. Jason Oxman, Electronic Transactions Association Chief Executive Officer, also noted his concern that the settlement proposal would allow merchants to surcharge without reducing prices. He cautioned merchants not to impose surcharges on cards "to the detriment of their own customers."

The Electronic Payments Coalition hailed the agreement but noted surcharging is banned in 10 states. end of article

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