Problems Ahead for $7.2 Billion Card Fee Ruling

There are more than 1,000 retailers across the country who came together on Thursday and reiterated their hopes that a federal judge will reject a proposed $7.2 billion settlement between those merchants and Visa Inc and MasterCard over credit card fees. They say it is an “unacceptable” proposal and they’re worried all of their legal rights would be stripped if the settlement moves forward. Unfortunately, barring any major changes, that ruling may move forward anyway.

The settlement that was proposed in October is still awaiting preliminary approval by the federal courts. If that initial approval is submitted, and if it continues to move forward as is, it will be the largest federal antitrust settlement in American history. It will affect more than 8 million merchants and will easily top $7 billion in both temporary reductions and cash settlements in debit and credit card processing fees.

Briefings Delivered

You may recall this has been an ongoing dispute since the settlement was first outlined over the summer. Since then, the controversy has grown and at least half of the retailers and various trade groups have opposed the settlement. Those who oppose it run the gamut, including major retail chains as well as the National Association of Convenience Stores and the National Restaurant Association. They collectively delivered a briefing to the courts this week and they’ve asked District Judge John Gleeson to reject the proposal in its entirety. Not only that, but another 1,200 merchants in various sectors have also petitioned for a different outcome. There have been numerous briefs submitted to the court, each with the reasons as to why it’s not a viable solution. Wal Mart, Inc., Target and other big name chains have all voiced their disapproval.

Jeff Shinder, who is an attorney that represents several of the plaintiffs released a statement this week,

The declarations from about 1,200 merchants, small and large, from every corner of the country, and every type of merchant speak volumes about the fact that something is very seriously wrong with this deal.

The arguments are that the settlement only addresses “here and now” issues and does nothing to change future swipe fee rates and the procedures that govern them. Not only that, but many are objecting to the built in protections for the big credit card networks, like MasterCard, Visa, Discover and others. The National Restaurant Federation, or NRF, released its own presser this week as well,

The proposal pending before the court does nothing to keep these soaring fees from continuing to drive prices higher for American consumers, and would block merchants who believe in true swipe fee reform from ever having their day in court,

NRF Senior Vice President and General Counsel Mallory Duncan said.

While the remaining parties would like to treat preliminary approval as a routine procedural step, the court should recognize that this settlement is so legally flawed it cannot be tweaked into fairness.

It should be noted that NRF itself isn’t part of the lawsuit; however, it represents many who will be affected by the settlement and ultimate changes.


For their parts, the networks, including both Visa and MasterCard along with those retailers that actually support the settlement have gone on record stating their confidence of a fair approval by the courts. Currently, most agree that the minimum thresholds have been met, though there are some who are concerned about the long term effects and potential problems that weren’t addressed in the suit. Most all agree, too, that a more “stringent” standard would be required over the long haul. For now, oral arguments are slated for November 9. If approval is given at that time, the second phase of the suit begins, which includes a very long process – some say up to nine months – that includes the opt out phase where retailers and others affected by the suit are able to continue their stance. Those who don’t opt out will continue forward with the suit.

One argument NRF makes is that the suit cannot be legally argued as a class action suit. It says the dynamics don’t work for all of the various business classifications. They say it’s the “wildly diverse group of merchants” that prohibits the class action suits. Instead of being able to opt out entirely, some retailers would only be able to reject their share of the $7.25 billion offered as compensation for past price fixing, and would remain bound by “flawed injunctive relief” that would “entrench current card industry practices rather than take steps to limit future fee hikes.” It also insists that the credit card companies would still be allowed to continue “anti competitive practices” would be allowed to institute “fee increases unchallenged”.

Swipe fees are defined as “hidden charges” that banks collect every time you swipe your major credit card to pay for a purchase. It’s believed combined credit and debit card swipe fees tripled over the past ten years to around $50 billion a year. This, many say, is what drives prices to an estimated $427 for the average household.

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