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Swipe Fee Settlement Struck Down Again

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Wal-Mart is the latest retailer to reject a settlement with Visa and MasterCard. The $7.25 billion payout would have been the largest ever antitrust settlement in history, but Wal-Mart and other retailers say that it doesn’t begin to fix the problems created by “swipe fees” that they call exorbitant and unfair.

The lawsuit over interchange fees – or “swipe fees” as they are also known – has been all over the news lately, with many speculating whether this will mean higher fees for customers paying with credit cards. However, it’s premature to wonder what the effect of any settlement might be, since one retailer after another is rejecting the offer from Visa and MasterCard.

An interchange fee is essentially a processing fee that is charged by the credit card issuer and is usually around two percent of the total purchase price. These so-called “swipe fees” are the reason that many stores require a minimum purchase amount in order to pay with a credit card.

Swipe fees are nothing new, and this case has been raging for quite some time – the original suit was brought in 2010 and the case has dragged on for over two years now. Maybe that’s why media outlets are so eager to report that the case has been settled, before it actually has been.

The Defendants

Visa and MasterCard aren’t the only defendants in this case, and they also aren’t the only ones offering to cough up the settlement money. JPMorgan and Bank of America are also named in the suit, accused of price-fixing and scheming with MasterCard and Visa to rip off merchants. To make this case go away, Bank of America, JPMorgan, and the rest of the defendants offered cash payments of $6.05 billion combined, along with about $1.2 billion in reduced interchange fees over the next eight months. Of that money, Visa would cover $4.4 billion, while MasterCard offered $790 million.

The CEO of Visa, Joseph Saunders, said that for Visa’s part, “We believe settling this case is in the best interests of all parties. We are comfortable with the terms, which we do not anticipate will impact our current guidance.”

The Plaintiffs

Merchants who brought the suit include Target, Wal-Mart, and the National Association of Convenience Stores (NACS) – all of whom have rejected the multi-billion dollar peace offering from Visa, MasterCard, and their big-bank cohort.

“The proposed settlement would not structurally change the broken market or prohibit credit card networks from continually increasing hidden swipe fees, which already cost consumers tens of billions of dollars each year,” said Wal-Mart, explaining why they found the settlement unacceptable.

Meanwhile, the NACS called the $7.25 billion a “mirage,” saying “merchants won’t get these funds for years and will have paid more than that through increased swipe fees long before they see those funds.” That’s according to NACS Chairman Tom Robinson, who went on to say that “Visa and MasterCard will continue to separately price-fix fees for thousands of their bank members. This means that banks won’t have to set their own prices and compete like other businesses throughout the U.S. economy.”

The Innocent Bystanders

Who will end up paying for all this in the end? It could be you, the consumer – the innocent bystander. Part of the proposed settlement – rejected though it may be – would allow merchants to pass on those swipe fees to consumers, though it’s not clear whether that will actually happen.  There has been no end of alarming articles coming out of the finance world though, wondering whether merchants will give discounts for using cash, or if people will stop using credit cards for fear of increased fees.

These things will probably not come to pass, but it the outcome of the case will be in the hands of U.S. District Court Judge John Gleeson, who will oversee the rejection or approval of the settlement over the next several months in a Brooklyn federal court.

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