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The Green Sheet Online Edition

February 25, 2019 • Issue 19:02:02

$6 billion Visa Mastercard settlement update

By Adam Atlas
Attorney at Law

ISOs being on the frontlines of negotiating and collecting merchant processing fees, are due an update on the latest development in the massive proposed $5.56 to $6.26 billion settlement to provide payments to merchants who accepted Visa and Mastercard at any time dating from Jan. 1, 2004.


The settlement relates to a class action claim alleging anti-trust violations brought in 2005 by 12 million retailers versus Visa, Mastercard and card issuing and acquiring banks including JPMorgan Chase & Co., Citigroup and Bank of America.

The allegations in the claim center around Visa and Mastercard’s honor-all-cards rules and rules that prohibited merchants from steering consumers to use forms of payment that were less expensive, such as cash or cards with lower interchange or discount dates. The plaintiffs allege that such practices were anti-competitive and illegal.

This case is poised to be the biggest class-action class settlement in history. An earlier settlement of the case fell through because a substantial number of merchants opted out.

The amount a merchant might receive is a function of the amount that the merchant's processing represents as a portion of the entire funds available for the settlement payment. It has been estimated to be equivalent to the amount of swipe fees a given merchant paid over a two or three month period. The amount will not be enormous for a typical small merchant, but the aggregate total is colossal.

After years of wrangling, the parties reached a proposed form of settlement that they presented to the United States District Court for the Eastern District of New York for preliminary approval in September 2018. While the parties were in agreement as to the settlement, it could not take effect without approval of the court.

The court had to determine if the settlement was fair, reasonable and adequate. If the settlement did not meet these three criteria, it would be a waste of time of the parties and the court to put the settlement to members of the class for approval – hence the requirement of settlement to meet a kind of reality check by the court before being rolled out.

When considering whether a proposed settlement is fair, reasonable and adequate, the court takes into consideration the following, known as the Grinnell factors, after Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974):

  1. The complexity, expense and likely duration of the litigation;
  2. The reaction of the class to the settlement;
  3. The stage of the proceedings and the amount of discovery completed;
  4. The risks of establishing liability;
  5. The risks of establishing damages;
  6. The risks of maintaining the class action through the trial;
  7. The ability of the defendants to withstand a greater judgment;
  8. The range of reasonableness of the settlement fund in light of the best possible recovery;
  9. The range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation.

The parties used highly experienced class action experts and mediators to convince the court the proposed settlement met the above factors.

Latest development

On Jan. 24, 2019, the United States District Court for the Eastern District of New York granted preliminary approval of the settlement, taking into consideration the factors set out above. Merchants were able to submit briefs to the court concerning the proposes settlement.

The plan for now is that within 90 days of Jan. 24, 2019, class members will be mailed a notice about their legal rights and the release of their claims. Information about the settlement will also be published in online media as well as in newspapers, consumer magazines and trade publications.

Some 8,000 or so merchants have opted out of the settlement, so there might still be ongoing litigation even after the largest cohort of claims is settled. Other parts of the claim concerning the way interchange works are ongoing and will, perhaps, be settled only after the claims related to interchange are settled.

What can ISOs do?

First, ISOs can serve an important educational role for merchants in informing them of the settlement and being ready to help merchants file claims when claim forms become available. The settlement established a site merchants and ISOs can access directly to learn about the latest developments from the settlement administrators themselves: www.paymentcardsettlement.com/en.

Second, ISOs can consider using one of a handful of third-party services that have been working on informing ISOs and merchants and getting ready to help merchants sign up when the claim forms are finally available. One such service is Brownstone Recovery (http://brownstonerecovery.com). Full disclosure: I have endorsed this service.

Third, ISOs can use this claim as an example of anti-trust laws working to help merchants avoid anti-competitive behavior. ISOs sometimes throw up their hands and give up in the face of sometimes absurd or unfair payment rules, thinking they could never challenge them because the networks and banks are simply too powerful to challenge.

This settlement is an excellent example of the Sherman Anti-Trust Act coming in to protect Main Street against anti-competitive practices of entities that have predominant market share. ISOs are in the best position to understand merchant needs related to processing and identifying possible future claims. ISOs themselves may also have future claims against processors in the event of, for example, arbitrary fees being levied on ISOs or passed through to merchants.

Risk for ISOs

Every time merchant services issues are in the news, merchant portfolios churn. Past events such as the PCI standard, TIN matching, big data breaches and other merchant processing events have led ISOs to (rightly or wrongly) solicit accounts using the news as a kind of hook for the sale. For example, some ISOs may call merchants and, perhaps, bamboozle them into thinking that the recent settlement has triggered a need to change processors etc. Seasoned ISOs will know about this. Those that are less seasoned should be aware of this possibility and be the first to educate their merchants on this historic moment for justice in payments. end of article

In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal, accounting or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. For further information on this article, please contact Adam Atlas, attorney at law, by email at atlas@adamatlas.com,/a> or by phone at 514-842-0886.

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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