Retailers say they will fight on as US court approves class action interchange settlement

Retailers say they will fight on as US court approves class action interchange settlement

US retailers have vowed to fight a US District Court ruling in favour of a $5.7 billion settlement with Visa and MasterCard over credit card swipe fees.

In a ruling released late on Friday, District Judge John Gleeson said that he was satisfied with the settlement in the class action case, which was agreed in July last year. Initially set at $7.25 billion, the figure was reduced to $5.7 billion in August as a result of reductions for about 8000 merchants that opted out of the deal.

The original ruling appeared to put an end to a seven-year long tussle between retailers, banks and card schemes over the fees charged for processing credit card transactions.

However, major retailers rejected the deal, kicking off an escalating litigation battle between the card schemes and merchants.

In his ruling upholding the settlement, Gleeson wrote: "For the first time, merchants will be empowered to expose hidden bank fees to their customers, educate them about those fees and use that information to influence their customers' choices of payment methods."

The decision was met with approval by the American Bankers Association, which accused the retailers of using the courts to distort the marketplace in order to boost their own profits.

"Only time will tell if this history will repeat itself, as retailers continue to show little regard for consumers and their payment preferences," says ABA president and CEO Frank Keating. "While the banking industry may not like all the results in this case, our industry is ready to put this matter behind us and continue playing a critical role in our nation's economic growth and job creation."

The National Retail Federation, however, expressed disappointment at the ruling, saying that it would do nothing to reduce swipe fees or keep them from rising in the future.

In a statement, the trade association says: "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. We are reviewing the ruling and will take whatever steps are necessary to protect the rights of merchants and safeguard the pocketbooks of their customers."

Comments: (1)

A Finextra member
A Finextra member 16 December, 2013, 17:45Be the first to give this comment the thumbs up 0 likes

Using the European Commission endorsed Tourist Test interchange rate cap of 0.3% for credit card transactions, interchange payments on the approximately $2.25tn of annual credit payment volume in the US should be $6.75bn per annum – a reduction of over $35bn on current charges of $45bn. We should note that although we would not expect these fees to be as low in the US as they are in Europe due to the higher usage of unsecure signature card transactions, we can still identify that a total settlement of $7.25bn is completely insufficient in compensating merchants for years of overcharges. 

Many of the largest US retailers have opted out of the pay-out, and it’s not difficult to see why; the benefits of successful litigation greatly exceed the current compensation offer, and make the convenience of a quick one-off fee a very undesirable option. Accepting the offer also eliminates retailers’ ability to fight interchange increases in the future.

Click here to read my full blog on the ruling on Finextra

 

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