US retailers reach $7.25 billion interchange settlement with card schemes and banks

US retailers have reached a $7.25 billion class action settlement with Visa, MasterCard and nine major credit card issuers, ending a seven-year legal dispute over interchange fees.

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US retailers reach $7.25 billion interchange settlement with card schemes and banks

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The settlement - believed to be the largest ever in a private antitrust case under the US SHerman Act - was agreed in the US District Court for the Eastern District of New York in Brooklyn late Friday.

Terms include a cash payment and significant reforms of Visa and MasterCard rules and business practices. The cash component of approximately $7.25 billion consists of a payment for alleged past damages in the amount of $6.05 billion, and a further payment representing the value to merchants of a temporary reduction in the level of interchange fees paid by merchants on Visa and MasterCard credit card transactions, estimated to have a value of $1.2 billion.

The reforms of rules and business practices include modifications of network rules previously enforced by Visa and MasterCard relating to activity at the point-of-sale, as well as a new requirement that Visa and MasterCard negotiate with merchant-organised buying groups.

It is expected that the reforms will enable merchants to put pressure on Visa and MasterCard to limit or reduce interchange fees, among other things.

"The reforms achieved by this case and in this settlement will help shift the competitive balance from one formerly dominated by the banks which controlled the card networks to the side of merchants and consumers," states K. Craig Wildfang, who led the case for the Class Plaintiffs as co-lead counsel and partner at Robins, Kaplan, Miller & Ciresi L.L.P. "Over time, the reforms induced by this case and in this settlement should help reduce card-acceptance costs to merchants, which in turn, will result in lower prices for all consumers."

Noah Hanft, MasterCard's general counsel comments: "Although we have strong defences 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."

Not all parties to the case were satisfied by the deal. Tom Robinson, speaking on behalf of the National Association of Convenience Stores, says: "Not only does the proposed settlement fail to introduce competition and transparency, it actually provides Visa and MasterCard with the tools to continue to shield swipe fees from market forces."

For the banks involved, the American Bankers Association says the agreement is a victory for retailers, not consumers: "Big-box retailers will likely seize this opportunity to ask Congress for even more handouts," says ABA President Frank Keating, in a reference to the Durbin amendment which banks claim resulted in an $8 billion windfall for retailers.

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Comments: (1)

A Finextra member 

"Over time, the reforms induced by this case and in this settlement should help reduce card-acceptance costs to merchants, which in turn, will result in lower prices for all consumers."

Wishful thinking: Durbin's debit card fee cut allowed retailers to save over US$7bn. Guess how much was passed on to the consumers (via price reductions)? Big fat zero.

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