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Updated: Thursday, October 4, 2012

Visa, MasterCard settlement has support

R etailers should know early in 2013 if the proposed preliminary settlement of retailer claims that Visa Inc. and MasterCard Worldwide interchange rates violate U.S. antitrust laws will be accepted by the Brooklyn Federal Court. So said Patrick Coughlin, one of the attorneys who negotiated the settlement on behalf of retailers, in an interview with The Green Sheet.

A number of national interests led by retail associations and some of the nation's largest retailers, including Wal-Mart Stores Inc. and Target Corp., are urging rejection of the settlement. Nonetheless, Coughlin said the preliminary approval will be filed with the court Oct. 12, 1012, and opponents will have 30 days following the filing to make formal opposing arguments.

He said the "settlement agreement is the product of long negotiations," and he expects Judge John Gleeson, the presiding judge, to approve it.

Settlement context

According to Coughlin, his confidence in the deal needs to be understood in context, and the first thing to note is that the litigation was brought after the 2004 settlement of similar claims brought by a coalition of retailers led by Wal-Mart.

"It's interesting that in 2004, Wal-Mart didn't get any changes to the interchange system, it got a lot less money, and it left Visa/MasterCard in the control of the banks," he said. He pointed out that in the proposed settlement merchants would, among other benefits, divide $7.25 billion, have more freedom to disclose card fees, and be able to impose surcharges to recapture those fees and steer customers to less expensive payment options. Visa and MasterCard will also have to negotiate in good faith with significant bargaining groups, he added.

Coughlin said a number of large retailers agree with his analysis. Among the plaintiffs supporting the settlement are nationally known grocers, such as The Kroger Co. and Pathmark Stores Inc., and pharmacies, such as Rite Aid Corp. and Walgreen Co., he added. "People don't really understand how many large merchants support this settlement," he said. "That's a story that hasn't gotten out yet."

Impact of settlement limited

Coughlin believes the changes brought by the settlement, if approved, would be significant. The litigation pushed Visa and MasterCard to "undertake IPOs and get out from under control of the banks," he said. The decision to make the card companies public corporations, coupled with the changes outlined in the proposed settlement, should change the options available to retailers, offer more competition and result in lower interchange rates, he noted.

As to retailers opposed to the proposed settlement, Coughlin said he respects their right to want change, but it takes legislation not litigation to limit interchange rates. "You have to look at who it is that opposes this settlement and what they are trying to do," he said. "Wal-Mart and Target are trying to get their own credit systems up and going. We have 8 million merchants out there who won't have their own credit card system. We welcome more competition for Visa and MasterCard."

Until Congress decides to change interchange rules, people will at least know they are paying 2.5 percent to 3 percent more when they use certain card products if the settlement is approved, according to Coughlin. "As a result of this transparency you will see more competition than ever before," he said.

More support for settlement

In related news, Illinois ISO Matrix Payment Systems offered support for the proposed interchange settlement in a statement released Sept. 12, 2012.

"It is just giving your hard earned money away" to not agree to the proposed settlement, the company said. Matrix calculated the value of the proposed settlement at 4 percent to 6 percent of the "dollar volume of credit cards processed during the past eight years" – about $3,000 to $4,000 refunded for every million dollars processed.


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