Visa and MasterCard announced a $6 billion settlement of a price fixing lawsuit dating back to 2005 that was brought against them by a wide range of retailers. However, almost as soon as the settlement was announced, a number of trade associations suggested a certain level of skepticism about the deal, which was reached after months of negotiation, with one coming right out and saying it could not endorse it.
In fact, the National Association of Convenience Stores (NACS) put a punctuation mark on its opposition to toe settlement by announcing over the weekend that it has hired the law firm of Constantine Cannon LLP, described by the WSJ as "a longtime legal foe" of both MasterCard and Visa, "to help challenge last week's $6.6 billion lawsuit settlement between the credit-card industry and merchants."
"This is a deeply flawed deal that will perpetuate the current system, while giving Visa and MasterCard broad legal cover going forward," Jeffrey Shinder, managing partner at Constantine Cannon, tells the Journal.
However, the Journal reports that a number of plaintiffs - including Kroger, Publix and Walgreen - already have signed onto the settlement.
The Associated Press frames the settlement this way: "Credit card companies have agreed to reduce swipe fees for eight months ... The temporary reprieve on fees is valued at $1.2 billion. The settlement does not apply to debit cards, which have grown in popularity for small-value transactions."
The pact, which is being called by lawyers involved in the case the largest antitrust settlement in US history, is seen as a major victory for merchants that have long complained about the billions of dollars in so-called 'swipe' or 'interchange' fees that they pay to banks for purchases made using plastic. But at a time when shoppers increasingly are using credit and debit cards, merchants will face a dilemma: Whether to charge shoppers extra for using plastic, and if so, how to do so without angering them."
According to the Wall Street Journal coverage of the story:
"The settlement is a victory for retailers, which will get more control over how people pay, and removes a legal threat for the major card companies. It could potentially raise prices for some goods and services for consumers who prefer using cards to cash and checks," because it allows "merchants to charge more to customers who pay with credit cards," a practice long prohibited by the credit card companies.
"The settlement calls for merchants to advise consumers of the surcharges, potentially at the cash register. It also includes some restrictions on the extra amount they can charge ... The lawsuit settlement says that merchants can't discriminate among card brands if they decide to add surcharges."
"Visa and MasterCard have already set aside most of the funds to pay for the cost of a settlement. Visa and MasterCard entered a sharing agreement last year that makes Visa responsible for about 67% of any settlement and MasterCard for 33%. The banks will help fund MasterCard's portion, leaving MasterCard with a responsibility of 12% of the settlement." Lawyers for the two companies said that while they believed that had a strong defense, the settlement "avoids years of litigation and uncertainties that are inherent in such cases."
The Journal notes that this represents "the second recent big interchange victory for merchants. The Dodd-Frank financial overhaul law that was adopted two year ago included a measure that cut in half the interchange fees on debit cards." And the AP writes that the National Retail Federation estimates that "swipe fees costs for stores total about $30 billion per year."
NACS stated its opposition this way:
“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 NACS Chairman Tom Robinson, president of Santa Clara, Calif.-based Robinson Oil Corp. “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.”
“Even the monetary agreement in this proposal is a mirage,” said Robinson. “Merchants won’t get these funds for years and will have paid more than that through increased swipe fees long before they see those funds.”
“NACS does not accept this proposed settlement and we reserve the right to fight it if other class representatives do accept it,” said NACS President and CEO Henry Armour. “There is plenty of time for merchants to make thoughtful decisions related to this proposed settlement. We hope and expect that, as they have the time to review it, many other merchants including class representatives will decide to reject this proposal."
Peter Larkin, president/CEO of the National Grocers Association (NGA) issued the following statement:
"NGA has been engaged in this litigation as a plaintiff for over seven years. We took this action on behalf of independent retail grocers to seek fundamental restructuring and reform of anti-competitive credit card interchange fees and payment rules. While we have knowledge of the framework of the settlement, we have not seen the final language or had a chance to assess its impact on our members. With the announced filing of the settlement agreement, NGA staff and our Executive Committee and Board of Directors will now begin a thorough review process of the settlement agreement to determine whether or not the association will be in support."
The National Community Pharmacists Association (NCPA) released the following statement:
"NCPA joined this lawsuit to achieve long-term reform of the credit card interchange fee system. The current system is inherently unfair to community pharmacy small business owners and saddles all consumers with higher costs. NCPA’s board and legal counsel are actively evaluating this complex and multifaceted proposed settlement to determine whether it is in the best interest of the independent community pharmacy owners we represent. No decision will be made with respect to the acceptability of this proposed settlement until a closer analysis of the final language has been completed.”
In fact, the National Association of Convenience Stores (NACS) put a punctuation mark on its opposition to toe settlement by announcing over the weekend that it has hired the law firm of Constantine Cannon LLP, described by the WSJ as "a longtime legal foe" of both MasterCard and Visa, "to help challenge last week's $6.6 billion lawsuit settlement between the credit-card industry and merchants."
"This is a deeply flawed deal that will perpetuate the current system, while giving Visa and MasterCard broad legal cover going forward," Jeffrey Shinder, managing partner at Constantine Cannon, tells the Journal.
However, the Journal reports that a number of plaintiffs - including Kroger, Publix and Walgreen - already have signed onto the settlement.
The Associated Press frames the settlement this way: "Credit card companies have agreed to reduce swipe fees for eight months ... The temporary reprieve on fees is valued at $1.2 billion. The settlement does not apply to debit cards, which have grown in popularity for small-value transactions."
The pact, which is being called by lawyers involved in the case the largest antitrust settlement in US history, is seen as a major victory for merchants that have long complained about the billions of dollars in so-called 'swipe' or 'interchange' fees that they pay to banks for purchases made using plastic. But at a time when shoppers increasingly are using credit and debit cards, merchants will face a dilemma: Whether to charge shoppers extra for using plastic, and if so, how to do so without angering them."
According to the Wall Street Journal coverage of the story:
"The settlement is a victory for retailers, which will get more control over how people pay, and removes a legal threat for the major card companies. It could potentially raise prices for some goods and services for consumers who prefer using cards to cash and checks," because it allows "merchants to charge more to customers who pay with credit cards," a practice long prohibited by the credit card companies.
"The settlement calls for merchants to advise consumers of the surcharges, potentially at the cash register. It also includes some restrictions on the extra amount they can charge ... The lawsuit settlement says that merchants can't discriminate among card brands if they decide to add surcharges."
"Visa and MasterCard have already set aside most of the funds to pay for the cost of a settlement. Visa and MasterCard entered a sharing agreement last year that makes Visa responsible for about 67% of any settlement and MasterCard for 33%. The banks will help fund MasterCard's portion, leaving MasterCard with a responsibility of 12% of the settlement." Lawyers for the two companies said that while they believed that had a strong defense, the settlement "avoids years of litigation and uncertainties that are inherent in such cases."
The Journal notes that this represents "the second recent big interchange victory for merchants. The Dodd-Frank financial overhaul law that was adopted two year ago included a measure that cut in half the interchange fees on debit cards." And the AP writes that the National Retail Federation estimates that "swipe fees costs for stores total about $30 billion per year."
NACS stated its opposition this way:
“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 NACS Chairman Tom Robinson, president of Santa Clara, Calif.-based Robinson Oil Corp. “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.”
“Even the monetary agreement in this proposal is a mirage,” said Robinson. “Merchants won’t get these funds for years and will have paid more than that through increased swipe fees long before they see those funds.”
“NACS does not accept this proposed settlement and we reserve the right to fight it if other class representatives do accept it,” said NACS President and CEO Henry Armour. “There is plenty of time for merchants to make thoughtful decisions related to this proposed settlement. We hope and expect that, as they have the time to review it, many other merchants including class representatives will decide to reject this proposal."
Peter Larkin, president/CEO of the National Grocers Association (NGA) issued the following statement:
"NGA has been engaged in this litigation as a plaintiff for over seven years. We took this action on behalf of independent retail grocers to seek fundamental restructuring and reform of anti-competitive credit card interchange fees and payment rules. While we have knowledge of the framework of the settlement, we have not seen the final language or had a chance to assess its impact on our members. With the announced filing of the settlement agreement, NGA staff and our Executive Committee and Board of Directors will now begin a thorough review process of the settlement agreement to determine whether or not the association will be in support."
The National Community Pharmacists Association (NCPA) released the following statement:
"NCPA joined this lawsuit to achieve long-term reform of the credit card interchange fee system. The current system is inherently unfair to community pharmacy small business owners and saddles all consumers with higher costs. NCPA’s board and legal counsel are actively evaluating this complex and multifaceted proposed settlement to determine whether it is in the best interest of the independent community pharmacy owners we represent. No decision will be made with respect to the acceptability of this proposed settlement until a closer analysis of the final language has been completed.”
- KC's View:
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I find the NACS argument to be pretty persuasive - that the credit card companies are playing a long game, believing that this settlement will give them legal cover for the foreseeable future.
It will be very interesting to see how this plays out, and if there will be enough retail resistance to the settlement to derail it.
