Government Merchants Share in Antitrust Settlement with Visa, MasterCard

This posting was written by Jeffrey May, editor of CCH Trade Regulation Reporter.

Governmental agencies and instrumentalities that accepted Visa and MasterCard branded debit and credit cards will share in a record $3 billion antitrust settlement with the credit card companies. An agreement for compensating the “government merchants” was filed with the federal district court in Brooklyn, New York, on December 29, 2006. The agreement resolves a dispute between lead counsel for the merchant class and the government.

Under the settlement, the claims administrator will release no more than $3.4 million to the U.S. Treasury, Visa will pay $2 million to the Treasury, and MasterCard will pay $1.5 million to the Treasury. In exchange, the government merchants will release their claims against Visa and MasterCard.

The Department of Justice asked the federal district court to permit the government merchants to participate in the settlement. Lead counsel for the merchant class had objected, arguing that the government merchants were treated substantively and procedurally as class members, and an expert for the class included the billions of dollars of the government merchants’ annual Visa and MasterCard transactions in his calculations, which increased the amount of the class damages. The government’s application was supported by Visa and MasterCard.

The underlying antitrust settlement resolved charges that Visa and MasterCard had unlawfully tied their credit card networks to use of their debit cards through an “Honor All Cards” policy, thereby forcing merchants to accept inflated debit card transaction fees and stifling competition in the debit card market. Approval of the settlement was upheld by the U.S. Court of Appeals in New York City in January 2005 (2005-1 TRADE CASES ¶74,661).