After years of litigation over interchange Visa and MasterCard proposed a settlement that would give over $7 billion back to U.S. retailers while also allowing merchants to add surcharges and fees for customers using credit or debit cards. While the proposed settlement is awaiting federal court approval, big name retailers and merchant trade groups have already voiced their opposition to the settlement.
This proposed settlement stems from dozens of lawsuit brought on by retailers in 2005 alleging that Visa and MasterCard violated antitrust laws by colluding to determine interchange fees. The proposed solution would first pay the class of merchants in the settlement $6 billion coming from Visa, MasterCard, Bank of America, Chase, Citibank, Capital One and other top issuing banks. Additionally, for a period of 8 months Visa and MasterCard would reduce swipe fees by 10 basis points for an estimated value of $1.2 billion. Visa would be taking on the bulk of the cost of the proposed settlement paying $4.4 billion while MasterCard’s share would be $790 million.
The proposed settlement also includes a change in Visa and MasterCard’s merchant acceptance rules allowing merchants to impose a surcharge on credit and debit card purchases, something that was previously prohibited. Merchants would need to provide 30 days written notice to Visa, MasterCard and their acquiring bank before imposing a surcharge which also comes with disclosure requirements and cannot be higher than the cost of card acceptance for a transaction. Any merchant who accepted Visa and MasterCard payments between 2004 and the pending date when the proposed settlement may be approved are members of the settlement class and are eligible for compensation, should they choose to accept the settlement.
The settlement agreed upon between Visa, MasterCard and several large issuing banks was proposed on July 13, 2012 but the settlement payments and changes to allow credit card surcharging will not go into effect until receiving court approval, which could take months if approved at all. Soon after the proposed settlement was announced several large merchants and merchant trade groups publicly opposed it. One of the first to do so was the National Association of Convenient Stores which voiced concern that the settlement still allows the card companies to dictate the rates banks charge and allows them to “shield swipe fees from market forces.” Walmart, the world’s largest retailer, issued a statement saying they were disappointed in the proposed settlement and that it “would not structurally change the broken market or prohibit credit card networks from continually increasing hidden swipe fees.” The National Retail Federation and major retailer Target publicly oppose the settlement as well. Opposition from these major trade groups and retailers may influence the court’s decision to approve the settlement, but even with court approval all merchants in the settlement class have the option of whether or not to accept the settlement. In the event that more than 25 percent of the settlement class opts out, Visa and MasterCard have the option of terminating the settlement and proposing a new one.
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