NRF Board Gives OK to Block Swipe Fee Settlement

WASHINGTON, D.C. -- The National Retail Federation's (NRF) board of directors has given its authorization to go to court to block the proposed $7.25-billion settlement of a federal antitrust lawsuit over credit card swipe fees. The deal on the table, which was made public in July, involves Visa, MasterCard and several financial institutions.

"The National Retail Federation categorically opposes the proposed settlement," NRF President and CEO Matthew Shay said. "It does nothing to curb the anticompetitive behavior of Visa and MasterCard, and instead ensures that swipe fees paid by retailers and their customers will continue to rise while barring any future legal challenges. The proposal is a lose-lose-lose for merchants, consumers and competition. NRF will take any and all steps necessary to oppose the settlement as it is currently proposed and will work toward real reform of the swipe fee system."

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, as CSNews Online previously reported.

The deal calls for merchants to be allowed to negotiate collectively over the swipe 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.

A resolution approved by the board authorizes NRF to take steps including "intervention in pending actions" in order to reach a solution "equitable to the broad merchant community." NRF is exploring what form the legal action might take. NRF is not a party to the lawsuit, and U.S. District Court Judge John Gleeson has not yet fully outlined how outside groups will be allowed to intervene, or if the case qualifies as a class action, according to a release from NRF.

"A key question for the judge is whether this settlement is fair to the nation's retailers," Shay said. "From what we have heard, it unequivocally is not. NRF's membership reflects the vast majority of retailers from Main Street small businesses to some of the nation's best-known brands. Short of a company-by-company poll, a vote by the NRF Board is the clearest test of what merchants think."

NRF has raised concerns about a number of provisions of the proposed settlement. According to the association:

• The $7.25 billion amounts to pennies on the dollar. If the case went to trial, a verdict in favor of retailers could result in a judgment totaling hundreds of billions of dollars given the eight-year time period of the case and rules allowing for antitrust damages to be tripled.
• Nothing is done to block future increases in swipe fees. Without competitive restrictions, the card industry would quickly recoup the cost of the settlement from the very retailers who have been harmed, and increases that have averaged 16 percent a year over the past decade could continue indefinitely.
• Nothing is done to reform the anti-competitive system by which Visa and MasterCard each set fee schedules that all banks issuing their respective cards agree to follow. NRF has testified before Congress that the system is a violation of federal antitrust law.
• Nothing is done to require the card industry to disclose the fees on the cards or otherwise create the transparency needed to bring about competition to lower fees.
• A provision allowing merchants to surcharge customers who pay by credit card is pointless because merchants are seeking to reduce prices for customers, not increase them. It also includes myriad restrictions that would make it difficult to surcharge even if someone wanted to.
• Visa and MasterCard have promised to recognize merchant bargaining groups, but no requirement is made for the card companies to negotiate in good faith.

The association also stated it is "particularly concerned" by a provision barring all merchants -- including those that do not yet exist -- from ever again suing Visa and MasterCard over swipe fees.

"We represent the nation's retailers and that means not just today's retailers but tomorrow's as well," Shay said. "It is our duty to foster an environment that is supportive of young, new entrepreneurs who will create the Walmarts and Amazons and Main Street shops of the future. We can't stand by and allow their rights to be stripped away before they've even had a chance to start their businesses."

In addition, NATSO, the national association representing the travel plaza and truckstop industry, has joined others in rejecting a proposed settlement of the antitrust lawsuit brought by merchants, including NATSO, alleging that Visa, MasterCard and national banks collude to set artificially high swipe fees.

"After careful consideration, NATSO's executive committee determined that the settlement would not be in the best interest of merchants, including NATSO members," said NATSO President and CEO Lisa Mullings in a statement. "We joined this lawsuit in search of real reform to a broken system, one that is shielded from normal competitive forces. This proposed settlement does not achieve this goal. It lacks meaningful fixes to a system that allowed Visa and MasterCard to set artificially high swipe fees and provided retailers and consumers with no choice except to pay.

"Rather than offering effective long-term relief, the settlement will ironically cost merchants and consumers more. Aside from a temporary lowering of fees, the credit card companies will be able to simply hike swipe fees to recover the damages and legal fees they have agreed to pay. In other words, retailers will pay for their own award. Worse, in exchange for this so-called relief, the settlement contains a broad release of future claims, sharply curtailing the ability of retailers to take legal action in the future," she added.

NRF and NATSO join a wave of other associations and retailers who have spoken out against the proposed deal. They include NACS, the Association for Convenience & Fuel Retailing, the Society of Independent Gasoline Marketers of America (SIGMA), Ricker Oil, Thorntons, Target Corp. and Wal-Mart Stores Inc.

The plaintiffs in the lawsuit have until Oct. 19 to formally request approval of the settlement.