More warring over proposed swipe fee settlement

There has been a lot of controversy among retailers over the recent settlement between some groups and the world's two largest credit and debit card payment processors, and now the boiling tension may be coming to a head.

A lawyer for four different retail groups that oppose the proposed $7.25 billion settlement between some merchants and both Visa and MasterCard recently argued that he and his clients need access to all documentation in the trial, according to a report from Bloomberg News. That request includes a number of records that Visa has classified as being "highly confidential."

"We're simply asking for our clients to have what they had throughout the litigation," lawyer Jeffrey Shinder, who represents groups including the National Community Pharmacists Association and the National Association of Convenience Stores, told U.S. Magistrate Judge James Orenstein, according to the report.

Why Visa is reluctant
Visa is, of course, opposed to its having to turn over these documents to a lawyer hoping to derail its proposed settlement, the report said. The company argued that if it were required to do so, it would prevent a risk of "inadvertent disclosure" of some of the proprietary methods for how it conducts its business. This may be especially true because Shinder was previously a lawyer for Discover Financial Services in the suit over the transaction fee suit. Further, his law firm also advises the mobile payments startup Merchant Customer Exchange.

The startup was formed by a number of major national merchants, which includes both Wal-Mart Stores and Target, both of which have voiced opposition to the swipe fee settlement as it currently stands, the report said. Plaintiffs in the case, which do not include the retail groups that have voiced opposition to it, have until October 19 to submit a motion seeking preliminary approval of the settlement. That could happen earlier, however, as a lawyer for the retailers who brought the original suit says there are few major issues to resolve. Visa chairman and chief executive officer Joseph Saunders told investors in July that the settlement is expected to be finalized by the end of the year.

Why outside groups oppose the settlement
There are a number of reasons why companies that were not involved in the suit to begin with believe that allowing the settlement to become finalized could be potentially damaging, the report said. For one thing, they believe that the terms of the deal as it is currently written is merely a drop in the bucket for Visa and MasterCard, which they say reaped billions of dollars more as a result of the practices over which the suits were initially brought, and which may further be recouped quickly after the settlement is cleared up and some of its terms expire.

This is especially true because U.S. Senator Richard Durbin recently warned many retail groups that if the settlement goes through as written, it could limit the abilities of other merchants to pursue other suits against Visa and MasterCard over their transaction fee practices in the future. That could also impact lawmakers' ability to draft new legislation to keep these swipe fees under control and could therefore allow Visa and MasterCard to return them to the levels that brought the suits in the first place, at least in theory.

"Merchants and their customers are actually worse off than if they had gone to trial and lost," Mallory Duncan, general counsel for the National Retail Federation, which likewise opposes the deal, told the news agency earlier this week.

Terms of the deal
In general, the merchant groups that are not involved in the settlement say that the agreement would be damaging for a number of reasons. For one thing, part of the $7.25 billion deal isn't paid in cash, but rather through temporarily reduced swipe fees, which will then be allowed to return to their current levels.

The problem with these fees, merchants say, is that they are unnecessarily high, and charged for every credit and debit card transaction they accept. Even the smallest businesses can lose tens of thousands of dollars per year on these costs, and for major retailers which operate on a national level, the amount they pay to Visa, MasterCard and other payment processors is considerably higher.

But the issue is that, as Durbin says, the terms of the current settlement prevent any merchants from bringing suits against either Visa or MasterCard over swipe fees again, which would potentially give them license to continue increasing what they charge for processing payments.

These costs are passed on to consumers through higher prices, which can impact their personal financial standings. However, another factor that might increase borrowing costs is a damaged credit standing. You can order a copy of your credit report to determine if there are any unfair markings lowering your credit score.

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