Swipe Fee Settlement is Granted Preliminary Approval

Despite unprecedented opposition from merchants, on Friday a federal judge gave preliminary approval of a $7.2 billion settlement of litigation against Visa, MasterCard and several large banks.


Despite unprecedented opposition from merchants, on Friday a federal judge gave preliminary approval of a $7.2 billion settlement of litigation against Visa, MasterCard and several large banks. Class counsel representing the named plaintiffs reached the settlement with defendants in July. However, 10 out of 19 of the original named plaintiffs (including NATSO) oppose the settlement and are no longer represented by class counsel.

The settlement does nothing to fix the broken system, which was the plaintiffs' original reason for filing the suit. The only winners under the settlement agreement are the lawyers and credit card companies. If the agreement achieves final approval, Visa and MasterCard will be legally protected against future lawsuits for anti-competitive behavior. Even though Visa and MasterCard will pay out billions of dollars, there is nothing that prevents them from hiking swipe fees in the future to recoup those damages, as well as the significant fees paid to class counsel if the settlement agreement achieves final approval.

In addition to the 10 class plaintiffs, 1,200 other merchants (including Wal-Mart), associations and American Express objected to the settlement.

In granting preliminary approval, the judge said objections from some plaintiffs were “overstated” and insufficient to deny the settlement at this stage. However, he said that the legal standard for preliminary approval is low, and he cautioned “I don't mean to suggest that there aren't a number of issues that would require more scrutiny,” when the settlement comes up for final approval next year.

Even if merchants want to opt out of the settlement, they are forced to accept a broad release shielding Visa and MasterCard from future litigation involving future anti-competitive conduct. This release of future claims took effect immediately after preliminary approval was granted (but would be rescinded if the judge does not grant final approval next year). Merchants believe that this release violates merchants' due process guarantees under the Constitution.

Merchants are also prevented from opting out of rule changes.

Lawyers debated the value of one of these rules, surcharging, during Friday's hearing. Within 60 days, Visa and MasterCard will lift restrictions on surcharging (as the settlement agreement requires). For most merchants, surcharging will be either unworkable or prohibited entirely. Laws in 10 states prohibit surcharging; transactions in these states make up 40 percent of the nation's total transactions. Retailers in other states who choose to surcharge must notify Visa and MasterCard payment networks of the plan and post signs that the merchant (i.e., not the payment card network) is surcharging the credit cards. Finally, the surcharge must be limited to the expense of accepting that particular card.

When the judge asked class counsel about the value of the rule changes (including surcharging) in the settlement he said, “Perhaps off the cuff it's something like $10 billion.” Class counsel argued that surcharging will assert downward pressure leading to lower cost. Even though surcharging is prohibited in 10 states, he asserted that national merchants can use it to lower overall interchange rates.

The judge said he may appoint an independent economic expert to determine the value of surcharging.

Photo Credit: exile7/bigstock.com


This article originally ran in NATSO News Weekly (NNW), NATSO's member only weekly electronic newsletter. NNW is packed with the latest updates on government and business issues affecting the truckstop and travel plaza industry.

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