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ALEXANDRIA, Va. — Visa, MasterCard and major banks announced on July 13 that they had entered a memorandum of agreement to pay $7.25 billion to settle a seven-year lawsuit with retailers and merchants over card swipe fees. Retailers say the card companies conspired to fix merchant interchange fees, also called "swipe fees." The suit is considered the largest antitrust class action of its kind.
If approved by the court, nearly 7 million merchants will have access to up to $7.25 billion for years of being overcharged on interchange fees, according to a statement by law firm Robbins Geller Rudman & Dowd LLP, which represented the plaintiffs along with two other law firms. Additionally, the settlement would require Visa and MasterCard to modify merchant rules and allow retailers to encourage cheaper forms of payment. In fact, merchants negotiated the stipulation that they can now tell customers how much to pay to cover card swipe costs.
Visa and MasterCard, along with JPMorgan Chase, Bank of America, Citibank, Wells Fargo, Capital One and other top banks, will set up a fund to pay retailers.
"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 for Robins, Kaplan, Miller & Ciresi LLP. "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."
Bankers have a different take on the settlement. "Let's be clear – retailers, not consumers, benefit from today's resolution," declared president of the American Bankers Association Frank Keating on the day of the ruling.
Convenience store owners don't like the deal
Smaller merchants are wary of the clout that large retailers like Kroger, Walgreens and other retailers can wield with this arrangement. They are also concerned that there will be no increase in transparency of fees or any new interchange competition to the card companies. In fact, the 50-year-old National Association of Convenience Stores (NACS), which was one of the leaders in the lawsuit, thinks the settlement is a bad deal. NACS represents 148,000 convenience stores throughout the country.
"Not only does the proposed settlement fail to introduce competition and transparency into a clearly broken market, it actually provides Visa and MasterCard with the tools to continue to shield swipe fees from market forces," said National Association of Convenience Stores chairman Tom Robinson. "This proposed settlement allows the card companies to continue to dictate the prices banks charge and the rules that constrain the market including for emerging payment methods, particularly mobile payments. Consumers and merchants ultimately will pay more as a result of this agreement — without any relief in sight."
Jeff Lenard, vice president of industry advocacy for NACS told Blue MauMau: "NACS is one of the class plaintiffs and has decided to not accept the proposed settlement terms because we believe that this does not fix the clearly broken swipe fee system and is bad for both merchants and customers. There are a number of other class plaintiffs and at this time none have indicated that they have either accepted or rejected the terms of the proposed settlement. We expect others to join us — we just don't know when or how many."
It's not just small convenient store chains and independent owners who are concerned. Margaret Chabris, spokesperson for 7-Eleven in Dallas, the North American subsidiary of Seven & I Holdings of Tokyo, told Blue MauMau that the company hopes that a better agreement can be achieved. "We think it is bad for retailers. But this is a start in the process, and we are hopeful that the terms will improve." 7-Eleven has 9,300 stores in North America. Its franchisor parent company oversees a network of 47,000 convenience stores, the largest franchise network of any kind in the world. That should be considerable leveraging power, compared to smaller chains and independents, to negotiate interchange fees.
It is expected that the retailing plaintiffs will have at least to late September to either accept the settlement or to continue on with the lawsuit. If over 25 percent of the retailing plaintiffs opt out, the card companies have the option of terminating the settlement.