Tuesday, July 17, 2012

Visa, MasterCard, Banks in $7.25 Billion Retail Settlement

NEW YORK (Reuters) - Visa Inc, MasterCard Inc and banks that issue their credit cards have agreed to a $7.25 billion settlement with U.S. retailers in a lawsuit over the fixing of credit and debit card fees in what could be the largest antitrust settlement in U.S. history.

The settlement, if approved by a judge, would resolve dozens of lawsuits filed by retailers in 2005. The card companies and banks would also allow stores to start charging customers extra for using certain credit cards in an effort to steer them toward cheaper forms of payment.

The settlement papers were filed on Friday in Brooklyn federal court.

Swipe fees - charges to cover processing credit and debit payments - are set by the card companies and deducted from the transaction by the banks that issue the cards, essentially passing on the cost to merchants, the lawsuits said.

The proposed settlement involves a payment to a class of stores of $6 billion from Visa, MasterCard and more than a dozen of the country's largest banks who issue the companies' cards. The card companies have also agreed to reduce swipe fees by the equivalent of 10 basis points for eight months for a total consideration to stores valued at about $1.2 billion, according to lawyers for the plaintiffs.

The deal calls for  merchants to be allowed to negotiate collectively over the swipe fees, also known as interchange fees.

Merchants would also be required to disclose information about card fees to customers, and credit card surcharges would be subject to a cap, according to the settlement papers. Surcharge rules would not affect the 10 states that currently prohibit that practice, which include California, New York and Texas.

An additional $525 million will be paid to stores suing individually, according to the documents.

"This is an historic settlement," said Bonny Sweeney, a lawyer for the plaintiffs. The 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," said Craig Wildfang, who also represented the plaintiffs.

Noah Hanft, general counsel for MasterCard, said the company believed its interests were "best served by an amicable resolution" of the case. Visa Chief Executive Officer Joseph Saunders said the settlement was in the best interest of all parties and did not expect the settlement to impact its current guidance.

Not everyone was pleased with the proposed settlement, however. One class plaintiff, the National Association of Convenience Stores, rejected the settlement in a statement on Friday from its president, Tom Robinson, who is also president of Robinson Oil Corp.

"Not only does the proposed settlement fail to introduce competition and transparency, it actually provides Visa and MasterCard with the tools to continue to shield swipe fees from market forces," Robinson said.

The proposed considerations are a far cry from the $50 billion in swipe-fees paid each year by U.S. retailers, he said.

The American Bankers Association, a trade group whose members include the bank defendants, said retailers, not consumers, stood to gain the most from the proposed settlement.

"Big-box retailers will likely seize this opportunity to ask Congress for even more handouts," said ABA President Frank Keating in a statement, referring to the Durbin amendment passed by Congress in 2010 limiting debit-card swipe fees - a move that banks say resulted in an $8 billion windfall for retailers.

"The legal process worked and should send a signal to Congress that it is wrong to pick winners and losers in a complex dispute between two industries," the Electronic Payment Coalition, which represents payment networks, said in a statement.

The plaintiffs charged that Visa and MasterCard colluded directly and indirectly through the issuing banks to keep merchants from finding ways to mitigate credit-card costs.

Plaintiffs in the case include supermarket chain Kroger Co, pharmacy chain Rite-Aid Corp and shoe retailer Payless ShoeSource, as well as trade associations such as the National Association of Convenience Stores, National Grocers Association and the American Booksellers Association.

The National Retail Federation, a trade group representing retailers, said that "the test will be whether the injunctive relief is meaningful. Unless it is, the card market will stay broken and neither merchants nor their customers will achieve a long-term benefit."

A number of banks that issue Visa and MasterCard cards, including JP Morgan Chase & Co, were also named as defendants in the lawsuit, along with Visa and MasterCard's payment networks.

A spokeswoman for Bank of America NA said it believed the terms of the settlement were fair. JP Morgan declined to comment. Citigroup Inc acknowledged its role in the deal and declined further comment.

A spokesman for Wells Fargo said the company was pleased to put the matter behind it.

An estimated 7 million retailers will be affected by the settlement, according to lawyers for the plaintiffs.

Visa and MasterCard have been plagued by legal problems over their payment-card policies for the last decade. In 2003, the companies paid a combined $3 billion to settle a lawsuit by stores over their "honor all cards" policies, which tied acceptance of credit to debit cards.

The U.S. Department of Justice brought and settled a civil antitrust suit against Visa and MasterCard in 2010. As part of the consent decree, the companies agreed to drop certain policies that kept stores from steering their customers to cheaper forms of payment.

But the decree left intact policies that prohibit stores from charging customers more when they use certain payment cards, according to a July 2011 court filing from plaintiffs.

The defendants denied that any collusion took place.

Visa said its share of the settlement is $4.4 billion, and Mastercard said its share is $790 million.

In December, Visa announced it set aside an additional $1.57 billion to cover the cost of a potential settlement in the case, bringing its litigation reserve balance to $4.28 billion, according to a regulatory filing. MasterCard in the fourth quarter of 2011 recorded a $770 million pretax charge, as an estimate of its potential liability in the case, a filing with the U.S. Securities and Exchange Commission showed.

MasterCard said in a statement that it expected to incur an additional $20 million pre-tax charge in its 2012 second quarter financial statements to cover its portion of the settlement.

Visa and MasterCard together accounted for more than 80 percent of U.S. credit and debit card purchases by volume in 2011, according to data from the Nilson Report, a California trade publication.

Albert Foer, president of think-tank the American Antitrust Institute, said that the settlement should create more transparency for consumers at the cash register. Because merchants had been forbidden from charging customers extra for costlier payment forms, they often built that cost into the retail price, he said.

While it may not lead to lower prices, "it gives the consumers some choice and it should ultimately mean a better deal for everybody," Foer said. "In the longer run, it should help keep retail prices under better control."

It may also be the last time retailers are allowed to take Visa and Mastercard to court over interchange fees. The proposal provides for extensive litigation releases that would keep stores that join the settlement from suing over a wide range of issues relating to fees and anti-steering restraints.

The case is In re: Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, in the U.S. District Court for the Eastern District of New York, no. 05-1720.

(Reporting by Jessica Dye; editing by Bernard Orr, Andre Grenon and Carol Bishopric)


  1. Thanks AK for your always great informative posts!

    Please excuse my ignorance, but can someone please help me understand a little more about all these so called “legal” wins we are having against the banks.

    So across the world banks are being taken to court for a very small percentage of the heinous and criminal activities against humanity that they have been creating every day for the last 100 or so years, right.

    So they go to court, and whereas any single individual or non-banking corporation would get various life sentences or even death for those involved and immediate closure of ANY business…they come out with a slap on the wrist and a monetary fine…that like that’s going to “get them where it HURTS”, right???

    The banks PRINT money, so how the HELL does this impact them in ANY way whatsoever, no matter how large the fine, they will just create more fiat money to pay this…it makes absolutely NO sense at all???

    And once these major fines are paid, where does most of the money go…to the people who suffered as a result (the general population)…hmm NO, and it most likely just transfers from one bank to another…of which they OWN BOTH anyway !!??

    We must stop playing their game and see this for what it is, nothing other than the “appearance” of justice to placate the masses…oh yes, those evil banks, they got caught and hit with a massive fine, “that will teach them!”…uh, wont it?

    Afraid not, never has and never will!

    Just think, if you had an unlimited amount of access to money and also control through most of the financial, legal and government system in place on the planet…you are GOD, you do WHAT you WANT, WHEN you WANT and you don’t give a DAMN what anyone else thinks…well there you have our current financial system described in a few brief words without the need for several years at university studying global economics, financial systems and all the other b’s they invented around what they do to make it seem legitimate.

    We all now know a lot more of the puzzle as the curtain is slowly being raised, so the same banking families globally control the majority of “everything” on the planet, including governments, courts and the judges that reside in them…so do you really think they have ANY FEAR of being caught or stopping…think again.

    Until these institutions are shut down and their people trailed and jailed for crimes against humanity, then there is NO JUSTICE, now we are AWAKE, the next thing we must do is to TAKE ACTION!

    Demand JUSTICE and SHUT DOWN these banks, stop fining the guys who print money, it’s ludicrous and in NO WAY stops the continuation of the crimes…why do we think this is the case…there is absolutely NO EVIDENCE and its just not logical…try to do what they do on a daily basis and get away with it…they are just people, like YOU and I, they should live by the same universal laws as YOU and I…they do not, so LETS FIX IT!

    Demand NESARA, Demand JUSTICE for the planet and her people…but lets take action…before its too late.

    I am all for LOVE and PEACE across the planet and elsewhere, but I know that just meditating loving thoughts is NOT going to stop these murderers from breaking into your house whenever they want and attacking you and your family…they do this every day now with their system of charges, fines, fees, taxes etc

    We have KNOWN deep down that something is VERY wrong with our world for many years, we are now SEEING what that is…and it ALL points to these global banking cartels controlling almost EVERY part of our lives, we are slaves and we need to be FREE!

    Peace & Love to all
    (Bankers, sorry, you can burn in HELL!) ☺

    That’s not a judgement call, its just a fact of where they will go due to their actions unless they admit their crimes and ask for forgiveness, I send them off with all the love in the universe.


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