Monday, July 16, 2012

Credit Card Issuers to Pay $6 Billion to Settle Swipe Fee Price Fixing Claims

This posting was written by Sarah Borchersen-Keto, CCH Washington Correspondent.

Visa, MasterCard, and other major U.S. financial institutions have reached a settlement totaling over $6 billion to resolve allegations that credit card issuers conspired to fix swipe fees, or charges that retailers pay to accept credit cards.

The settlement in the protracted legal dispute was announced by the U.S. District Court for the Eastern District of New York.

Under the terms of the settlement, merchants will be allowed to impose additional fees on consumers using credit cards. Merchants, however, have agreed to limit the level and circumstances in which they impose such fees. The fees will not be allowed if they are prohibited by state law, and consumers must be made aware of any additional fees at the point-of-sale and on the receipt.

In addition, merchants will receive a 10 basis points reduction in credit interchange rates for a period of eight months, which is valued at about $1.2 billion.

“The reforms achieved by this case and in this settlement will help shift the competitive balance from one formerly dominated by the banks which controlled the card networks to the side of merchants and consumers,” said K. Craig Wildfang, co-lead counsel and partner at Robins, Kaplan, Miller & Ciresi LLP, representing class plaintiffs in the case. He added that over time, reforms produced by the settlement “should help reduce card-acceptance costs to merchants, which in turn, will result in lower prices for all consumers.”

Visa chairman and chief executive officer Joseph Saunders said settling the case “is in the best interests of all parties.” MasterCard General Counsel Noah Hanft added, “although we have strong defense to all claims, a settlement avoids years of litigation and uncertainties that are inherent in such cases.”

The Electronic Payments Coalition praised the settlement, saying it was in “stark contrast to that of the Durbin Amendment, which was passed in the dark of night with no review of its consequences and virtually no public debate.” The group said that the agreement “should send a signal to Congress that it is wrong to pick winners and losers in a complex dispute between two industries.”

Meanwhile, the National Association of Convenience Stores said it would reject the settlement because it fails to introduce competition and transparency. The group said the card companies will be able to “continue to dictate the prices banks charge and the rules that constrain the market, including for emerging payment methods, particularly mobile payments.”

The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, No. 05-MD-1720 (JG)(JO), U.S. District Court, Eastern District of New York.

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