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The Green Sheet Online Edition

January 13, 2014 • Issue 14:01:01

Class-action interchange fee settlement approved

At last, the controversial and long disputed $7.25 billion settlement of the class-action lawsuit brought by retailers against Visa Inc. and MasterCard Worldwide over interchange fees was approved.

The Dec. 13, 2013, order of Judge John Gleeson of the United States District Court Eastern District of New York paves the way for merchants large and small to receive compensation for allegedly excessive electronic transaction processing fees imposed by the card brands over an eight-year period.

In his memorandum and order, Gleeson found that the settlement plan was both fair and reasonable. The claim administrator will now begin distributing funds to some 8 million U.S. merchants from two accounts - the $6.05 billion Cash Settlement Fund and the estimated $1.2 billion Interchange Fund.

For more details on the settlement, see "The $7.25 billion settlement proposal: What you need to know," The Green Sheet, April 22, 2013, issue 13:04:02.

Gleeson said only minor modifications would be made to the settlement and that a status conference regarding next steps would be held in his courtroom on Jan. 10, 2014.

The settlement, which was initially reached in July 2013, resolves, for now, a legal battle over interchange and card brand rules that began in 2005. As outlined by Gleeson, in that time both Visa and MasterCard have gone public and the Durbin Amendment to the Dodd-Frank Act (which regulated debit card interchange) was implemented. Along the way, proponents and opponents of the settlement routinely slung accusations at one another.

In April 2013, Gleeson even threatened to hold six national trade associations in contempt of court for disseminating what the judge characterized as misleading information about the settlement via websites. Gleeson said the misinformation campaigns arose from "their zeal to drum up objections and opt-outs by merchants around the country." He noted that in the arena of class action settlements, "this one has been anything but typical."

For and against

Reactions to the settlement's approval were predictable. The law firm of Robins, Kaplan, Miller & Ciresi LLP, which filed the initial class action lawsuit in 2005, endorsed the settlement. K. Craig Wildfang, partner at the firm and co-lead counsel for the retailers, said he looks forward to "getting the funds into the hands of the members of the class."

The Electronic Payments Coalition, which represents the card brands' interests, also expressed satisfaction with the settlement. "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 EPC said. "After years of mediation, dozens of meetings, and millions of pages of evidence, the parties involved have willingly agreed to settle their dispute."

However, such was not the verdict of the National Retail Federation, the largest U.S. retailers' association. "We are very disappointed that this deeply flawed settlement has been approved," said NRF Senior Vice President and General Counsel Mallory Duncan.

He added that the settlement "permanently ties the hands of thousands of businesses who wanted nothing to do with this misguided case."

In addition, Duncan pointed out that "swipe fees cost merchants and their customers an estimated $30 billion a year and have tripled over the past decade." He noted that the NRF is reviewing the ruling and "will take whatever steps are necessary to protect the rights of merchants and safeguard the pocketbooks of their customers."

Back to business

Final arguments for and against the settlement were heard by the judge in a contentious Sept. 12, 2013, hearing. Gleeson portrayed settlement objectors at the hearing as "afflicted by needless hyperbole." He said one merchant association principal posed the argument that merchants would be worse off if the settlement was approved than if the lawsuit went to trial and the plaintiffs then lost the case.

Gleeson added that another settlement critic equated settlement approval to "the deprivation of civil liberties in the aftermath of a terrorist attack." A third opponent of the settlement "cast Visa and MasterCard as modern-day Nazis, and warned me not to assume the role of [England's World War II era prime minister] Neville Chamberlain," Gleeson said.

The judge stated that "the vitriol and poor behavior and feigned hysteria [of the settlement opponents at the hearing] mask complex and difficult issues on which reasonable merchants can and do disagree." Apparently, merchants overall did not disagree with the settlement, as Gleeson said his decision to approve the settlement was strengthened by "the relatively small number of opt-outs and absence of objections from class members" to it.

Maybe Jason Oxman, Chief Executive Officer of the Electronic Transactions Association, struck the right note. "Although ETA was not a party to this litigation, I think it's good for all concerned to have this settlement behind us," he said. Oxman feels that legal wrangling distracts financial service providers and merchants alike from providing consumers with safe and reliable services . end of article

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