Visa, MasterCard Settle Interchange Suit for $7.25 Billion 

July 16, 2012

Visa, MasterCard and several of the U.S.’s largest credit-card issuers late Friday afternoon announced they have agreed to a $7.25 billion settlement to a class action suit brought by retailers in 2005 disputing the way the companies set credit-card interchange rates. The settlement, which still needs approval by a judge, includes $6.05 billion reportedly to be paid in cash to the eligible class of retailers. The defendants will distribute the remaining $1.2 billion as a temporary 10-basis-point reduction in interchange fees. An additional $525 million will be paid to retailers who sued the group individually, according to court documents. Non-financial terms of the deal include giving retailers the right to negotiate interchange rates collectively with the networks and the right to surcharge customers who pay with a credit card (except in the 10 states where it remains illegal by statute). Debit card interchange, which was controversially addressed by the Durbin Amendment to the Dodd-Frank Wall Street Reform Act, was not included in Friday’s proposed agreement.

Visa and MasterCard both expressed “comfort” with the settlement in prepared statements. The Electronic Payment Coalition, a trade association representing banks and the payment networks said, “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.”

Plaintiffs’ attorneys also expressed satisfaction with the settlement and major retailers like Kroger and Publix supermarkets and Walgreen’s drugstores have reportedly signed on to the settlement. At least one faction involved in the litigation, however, has rejected the proposal and will continue to seek legal remedies.

“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 Tom Robinson, chairman of the Association for Convenience and Fuel Retailing (NACS) and president of Santa Clara, Calif.-based Robinson Oil Corp., in a NACS statement. “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.

Of the total proposed settlement, Visa said it is responsible for $4.4 billion. MasterCard will pay $790 million.