Judge signs off on retailer swipe fee settlement

The proposed settlement between the world’s largest credit and debit card payment processors and a number of retail industry groups is poised to move forward despite the stringent objections of many well-known companies and organizations.

The highly-publicized $7.2 billion settlement between Visa and MasterCard, and several retail organizations recently received preliminary approval from the judge in the case, much to the chagrin of hundreds of retailers large and small, all across the country, according to a report from Reuters. The objections of those not participating in the case were weighed by U.S. District Court Judge John Gleeson, but he said their concerns were “overstated.” However, he also noted that final approval would require both sides of the case to clear more stringent legal hurdles.

Proposed terms of the settlement

The deal on which the judge signed off preliminarily would require Visa and MasterCard to pay the combined total of the $7.2 billion in both cash and temporary reductions in the fees they charge every time a consumer uses one of their branded credit or debit cards, the report said. Those policies for how they charge these fees would also have to be changed within 60 days of preliminary approval (which came on November 9), and that should include adding the new ability for retailers to charge more to consumers for making credit or debit purchases as a means of covering the swipe fees merchants pay.

Of that $7.2 billion, just $1.2 billion will come in the form of lower swipe fees across the industry for a period of a few months, the report said. Those lower fees will go into effect prior to the settlement receiving final approval, but after members of the class action suit are given the chance to opt out of receiving the monetary damages agreed to in the deal.

Myriad objections to the deal

Though the settlement, which will pay close to 8 million merchants across the country in some way, is the largest in U.S. federal antitrust history, many massive national retailers say the deal is a bad one for merchants, the report said. The courtroom in which the initial approval was announced was full of lawyers representing companies like Walmart, Target, the Home Depot, and so forth, all of which told the judge that the deal was not in the best interests of the parties involved. The class action members, for their part, said those beliefs were the result of the outsiders having received “misinformation.”

Among the objections was that the $7.2 billion was a relative drop in the bucket for Visa and MasterCard, as they rake in about $30 billion from swipe fees alone every year, the report said. In addition, the terms of the agreement will allow Visa and MasterCard to be protected from all future litigation related to swipe fees, which those outside the class action group say would violate their legal rights, and allow the two payment processors to engage in anti-competitive practices in the future. Further, the deal provides no opt-out choice for litigation later on. In all, the suit originally had 19 plaintiffs, but 10 of them objected to the settlement.

Are the complaints well founded?

Despite the preliminary approval of the deal, Gleeson says he certainly sees where objectors base their complaints, the report said. He further said that he will consider appointing an independent expert who can better allow him to understand the financial impact of the changes proposed in the deal.

“I don’t mean to suggest there aren’t a number of issues that are going to require significant scrutiny,” he said in court, according to the report.

Those that object to the deal vowed they will continue to try to stop it, the report said. However, both Visa and MasterCard have concerns about wrapping up the deal, which took months of negotiations to finalize after several years in the court system. On the other hand, Mallory Duncan, general counsel for the National Retail Federation, says that the deal really only benefits the credit card companies and lawyers for the retailers, not the merchants themselves, and as such, the group is now considering what legal recourse it may have to step in as one of the nation’s largest trade groups.

The proposed new swipe fee rules, which would allow merchants to pass these costs on to consumers, could end up costing shoppers a significant amount of money every year, adding to credit card debt and putting them on less stable financial footing. Borrowers should also always take the time to check their credit reports for any unfair markings that may have a negative impact on their credit score, which in turn can make borrowing even more expensive.

Posted in Finance
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