$5.7 Billion Interchange Settlement Nets Final Approval

Dec. 13, 2013

A federal judge in Brooklyn has approved the massive antitrust settlement between major issuers and card networks on one side and merchants on the other—though a powerful faction of merchants that objected to the settlement proposal signaled its intent to appeal. U.S. District Judge Richard Gleeson approved the plan to pay out $5.7 billion to hundreds of thousands of merchants who brought suit nearly a decade ago over the way Visa, MasterCard and their issuing banks set credit-card interchange rates.

In addition to a lump sum payment that includes the value of a temporary reduction in the interchange they owe, merchants also secured the right to surcharge consumers who pay with credit cards.

In his ruling, Gleeson said the settlement “secures both a significant damage award and meaningful injunctive relief for a class of merchants that would face a substantial likelihood of securing no relief at all if this case were to proceed.”

Representatives of the card networks and banks hailed the decision:

“The long political conflict over interchange fees is finally over, settled by a well-established legal process, which brought together retailers and the card industry for a negotiated resolution,” said a statement from the Electronic Payment Coalition, which has been speaking for Visa, MasterCard and the issuers throughout the legal process. “After years of mediation, dozens of meetings, and millions of pages of evidence, the parties involved have willingly agreed to settle their dispute. This settlement is in the best interest of all involved parties and that has been proven today with the court’s final approval.”

While the value of the settlement has been reduced from the original $7.2 billion due to around 8,000 class members opting out, the $5.7 billion awarded to the class is believed to be the largest ever in an antitrust suit.

Retailers that opted out of the settlement include Amazon, Walmart, Target, Macy’s JC Penney, Kohl’s Bloomingdale’s, Staples, Victoria’s Secret, LensCrafters and Saks. They objected to the requirement that retailers receiving settlement money relinquish their right to sue on interchange-related grounds in perpetuity.

The surcharging provision also has come under fire. While it’s spelled out in the settlement as a new right for merchants, the practice remains illegal by statute in 10 states representing about 40 percent of U.S. retail sales. Merchants cannot surcharge in stores located in those states.

The National Retail Federation, a trade association representing U.S. retailers, called the settlement “deeply flawed.”

“We are very disappointed that this deeply flawed settlement has been approved,” the group said in a statement. “It is not supported by the retail industry and would do nothing to reduce swipe fees or keep them from rising in the future. The settlement permanently ties the hands of thousands of businesses who wanted nothing to do with this misguided case, and a decision to approve it violates established law and common sense.”