WASHINGTON, D.C. — As retailers fight to keep debit card swipe-fee reform in place, they are also keeping an eye on a class-action settlement over credit card fees that was struck down in the courts.
The National Retail Federation (NRF) and the Retail Industry Leaders Association (RILA) have asked the U.S. Supreme Court to let stand an appeals court ruling that struck down a 2012 settlement of a class action lawsuit over Visa Inc. and MasterCard Inc.'s credit card swipe fees.
"This alleged 'settlement' was a backroom deal that would have done nothing to end price fixing or keep swipe fees from soaring in the future," NRF Senior Vice President and General Counsel Mallory Duncan said. "Even worse, it includes a provision that would keep merchants from ever suing over this issue again. The Circuit Court did the right thing in tossing this case out and it should not be revived. There are ways to bring swipe fees under control but this settlement is not one of them."
According to Duncan, this is not just a business-to-business dispute. "These fees drive up the price of retail merchandise, costing the average family hundreds of dollars a year in added expenses," the executive added.
In late June, the 2nd U.S. Circuit Court of Appeals in New York threw out the $7.25-billion antitrust settlement among Visa, MasterCard and millions of retailers over credit card fees. In the move, the federal appeals court said some of the retailers were inadequately represented in the litigation, as CSNews Online previously reported.
It also decertified the case as a class action.
The court's decision overturned a July 2012 agreement that settled claims that the credit card companies overcharged merchants on swipe fees — also known as interchange fees. U.S. District Judge John Gleeson in Brooklyn, who has since left the bench, had approved the settlement in 2013.
The settlement had been the largest all-cash antitrust accord in U.S. history. One class of merchants that accepted Visa or MasterCard from January 2004 to November 2012 was to share up to $7.25 billion, while a second class accepting the cards from then on was to get injunctive relief in the form of rule changes.
But many retailers objected, saying the settlement, among other things, forced members of the second class to give up their right to sue over various policies and practices.
Writing for the appeals court, Circuit Judge Dennis Jacobs said the two classes should not have been represented by the same lawyers, who were awarded $544.8 million in fees. He said the lawyers suffered from a "fundamental conflict," having been in position to negotiate terms that could simultaneously benefit one class and harm the other.
"We have reason to think that that occurred here," and in the end "sapped class counsel of the incentive to zealously represent" the class obtaining injunctive relief, Jacobs said.
According to NRF, Gleeson approved the settlement even though the organization and others argued that it failed to reform the price-fixing system under which Visa and MasterCard set fees for credit cards issued by thousands of banks.
Rather than lower the fees, the card companies proposed in the settlement that they be passed along to consumers as a surcharge. Major retailers rejected the surcharge proposal, saying it was the opposite of what they sought, while small retailers would have seen as little as a few hundred dollars each.
Retailers who rejected the monetary settlement would still have been bound by other restrictions the court would not let them opt out of, including a prohibition on future lawsuits over the fees, according to NRF.
In 2014, NRF asked the 2nd Circuit to overturn the settlement, saying a broad cross section of the retail industry ranging from independent Main Street stores to national chains opposed the deal.
"The settlement itself achieved nothing important for merchants that accept credit cards, which is why every prominent group that represents merchants has opposed it," NRF and RILA said in a joint brief filed Feb. 21 with the Supreme Court. "This deal is a bad one, unworthy of resuscitation."