Retailers Ask Judge to Reject Swipe Fee Settlement
NATIONAL REPORT — The National Retail Federation (NRF) asked a federal judge on April 26 to reject a proposed $30 billion settlement of a class-action antitrust lawsuit over credit and debit card fees merchants were charged to process Visa and Mastercard transactions.
"This 'settlement' is a backroom deal struck without the input of major retailers or the trade associations that protect the interests of small Main Street merchants," stated NRF Chief Administrative Officer and General Counsel Stephanie Martz. "It fails to address anticompetitive practices that lead to ever-rising swipe fees that drive up costs for small businesses and prices for American families. It should be seen for the failure that it is."
[Read more: Retailer Groups React to Visa & Mastercard Settlement]
In a letter to U.S. District Judge Margo Brodie, NRF attorneys wrote that the proposal fails to end Visa and Mastercard's practice of centrally setting "default" swipe fees charged by all banks that issue their cards, rather than letting banks compete to offer the best rates. They also noted that it does not reverse the controversial "honor all cards" rule that requires merchants to accept all cards from each network, regardless of the associated fees.
"The proposed settlement does not even approach the type of relief that is required," the letter said. "The settlement agreement's minimal relief would always be inadequate without these core terms, but it is particularly so now when the case is on the relative eve of trial after years of litigation. To cram down a settlement with minimal relief after the defendants' recent summary judgement defeat is deeply unfair."
Under the terms of the proposed settlement, Visa and Mastercard would reduce rates for each swipe fee category by 4 basis points (0.04 of one percentage point) for three years and average rates by 7 basis points for five years. However, because credit card swipe fees currently average 2.26% of the transaction or 226 basis points, "this temporary reduction is but a drop in the bucket," the letter continued.
[Read more: Consumers Experiencing Credit Card Fee Fatigue]
NRF attorneys also stated that following five years of "meager and temporary relief," the card issuers would be free to raise rates "without restraint"; that the settlement applies only to interchange fees, leaving Visa and Mastercard free to undercut the settlement's value by raising network fees; and that one provision of the settlement would allow merchants to impose a surcharge on customers who use premium cards that carry higher-than-average swipe fees.
"Few merchants will do so in the highly competitive retail market," the letter continued, adding that doing so would be impossible in states that ban surcharges or limit surcharges to the amount of the swipe fee, which often isn't known to the merchant at the time of the transaction.
In addition to providing temporary relief, NRF claims the settlement includes a "virtually limitless" ban on future merchant litigation over swipe fees, with no opt-out provision, and that even businesses that do not currently exist would be barred from future lawsuits — a potential violation of the Sherman Antitrust Act.
According to NRF, the settlement's failures are largely due to attorneys for the small group of named plaintiffs, who have "effectively frozen us out" despite its repeated offers to assist.
Washington, D.C.-based NRF empowers the industry that powers the economy. Retail is the nation's largest private-sector employer, contributing $3.9 trillion to annual gross domestic product and supporting one in four U.S. jobs — 52 million working Americans.