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Update on Antitrust Card Fee Settlement

Update on Antitrust Card Fee Settlement

This week, a U.S. appeals court opted not to hear an appeal of the still-preliminary approval of a $7.2 billion settlement between Visa Inc, Mastercard Inc. and hundreds of merchants over credit card fees. The 2nd U.S. Circuit Court of Appeals in New York issued a very short replay and denied one objecting merchant, The Home Depot and its request for expedited arguments and a decision on its appeal. Not only that but the Court also ruled that other parties should not file their own requests until the District courts have finalized their own rulings, which aren’t expected until last year.

30 Merchants, 7 Years

The suits have been ongoing for years. In 2005, more than 30 merchants filed antitrust lawsuits in U.S District Court against Visa, MasterCard and several of their member banks. The accusations included breaching federal antitrust law by fixing the prices on interchange fees. Further, there were accusations that Visa and MasterCard were “working in collusion with their largest member banks to set interchange rates”. Together, the suit claimed, 80 percent of the market was covered and because of that, most merchants were unable to run their businesses without the card services.

The people who used to sit on Visa’s board of directors are now on MasterCard’s and vice versa. Visa and MasterCard’s rates always go up together,

said one of the merchants.

I need to make sure my customers are satisfied or I can lose their business. That’s why it’s a monopoly, because their costs keep going up and we have no choice but to pay.

Not long after President Obama signed the Credit CARD Act of 2009, members of Congress immediately went to work on new legislation that would change the interchange rules. There are currently three bills that aim to reform those fees.


MasterCard responded to those allegations by saying, “Simply put, it’s not true.” In an e-mail statement, a company spokesperson said they set their interchange rates “independently” and “compete vigorously” with Visa. For its part, Visa said interchange rates are, “set in a dynamic and competitive marketplace.” And if the merchants prevail in court, consumers will end up paying more for goods and services.

The merchants have long since contended that interchange fees vary depending on the type of card a customer uses during the transaction. It’s impossible for businesses to know what it’s going to cost them each time they process a credit or debit transaction. Rewards credit cards have the highest fees while debit cards traditionally have lower interchange fees.

The deal received preliminary approval this past November. If it’s finalized, it will be the largest federal antitrust settlement in U.S. history and will pay out $7.2 billion to around 8 million merchants while also offering temporary reductions in the interchange, or swipe fees, they pay to process credit and debit transactions. Initially, most merchants believed that was a fair deal, but recently, a host of retailers and other trade groups that brought the first class action suit forward, are now objecting. Specifically, they’re at odds with the clause that releases both Visa and MasterCard from any future lawsuits over anything related to the interchange fees.

Another problem, say critics, is that unless you’re an industry insider, it’s almost impossible to figure out how they come up with the interchange rates, how much money is being made, and where it all goes.

Meaningless Relief

Other merchants, including the Home Depot and Wal Mart, are now objecting and they say it offers little more than “meaningless relief for merchants saddled with an estimated $30 billion in annual swipe fees”. Home Depot has yet to respond to this latest decision. Meanwhile, a lawyer that represents some of the plaintiffs that filed the objection, say his clients aren’t giving up and remain confident and continue to “press that position at every turn going forward.”

But there are those merchants who are happy with the preliminary finding. The lead co-counsel for those merchants, Craig Wildfang, says his clients are happy that the court opted not to act.

We’re happy that the 2nd Circuit has agreed with us that there’s no imminent harm to anyone from preliminary approval and that is letting the approval process play out,

he said. Plaintiffs supporting the settlement include Payless ShoeSource, among others.

The spokesperson for the industry group that currently represents both Visa and MasterCard, Trisha Wexler, said she and her group believe the expected settlement to move forward with no more setbacks.

The bigger the card system gets, the merchants and consumers are ultimately benefiting. The increased use of cards in America has led to the financial success of merchants.

What are your thoughts on these latest developments? Do you believe the suits are moot since the costs are always handed down to the consumer? Do you think there’s a better solution? Share your thoughts with us – we want to hear from you.

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