The battle over credit card processing “swipe fees” is far from over, as Visa, MasterCard, and retailers including grocery giants Safeway and Kroger prepare to go to a Brooklyn court this week and ask a judge to approve a settlement offered in July, in the amount of $7.2 billion – the largest antitrust settlement in history – while several other major retailers, including Starbucks and Lowe’s, oppose the deal.
For seven years, litigation has dragged on between credit card networks Visa and MasterCard and a group of merchants who claim their credit card processing fees are inflated, costing them billions of dollars each year and choking their profits margins.
When MasterCard and Visa made their settlement offer last summer, it was immediately met with protest by several large retail groups, including the National Association of Convenience Stores, the National Grocers Association, and the National Community Pharmacists Association. Even companies who were not a party to the original lawsuit have thrown their weight behind the protesting groups – Walmart, Target, and the National Retail Federation have all expressed their opposition to the settlement.
Two Percent of Purchases Adds Up to Billions
The cause of the suit is the so-called “swipe fees” that are charged by Visa and MasterCard (more formally known as interchange fees – a fancy term for credit card processing fees). Interchange fees amount to about two percent of each purchase, an amount that retailers argue adds up to billions of dollars in drained profits, since they aren’t allowed to pass the charge on to consumers. The settlement would allow them to do so, causing a wave of panic among consumers worried that stores will slap them with fees for using credit cards if the settlement is approved.
A spokesman for MasterCard and Visa’s trade group says that retailers who oppose the settlement are motivated by politics. “This is their job, to throw bombs and to make noise and to march up to Capitol Hill with their hands out,” says Trish Wexler of the Electronic Payment Coalition.
Retail Giants Face Off
“This is a remarkably and fatally flawed deal,” says Jeff Shinder, counsel for several of the trade groups who oppose the settlement. He claims that the settlement allows Visa and MasterCard to continue raising interchanged fees while taking away merchants right to legal action in the future.
However, representatives for Kroger, Safeway, and others who support the settlement say that it would raise awareness among consumers and open a line of communication between retailers and shoppers, perhaps resulting in more people paying with cash, which could benefit both parties.
“We think [the settlement] will begin to produce real competition in the payments business and potentially lower costs for all consumers,” said Safeway’s senior vice-president of finance, Melissa Plaisance.
The size of the settlement offer isn’t the only thing that’s unprecedented in this case – the lack of accord over it is unusual as well. “You don’t usually see a lot of objectors in class actions and you don’t usually see them of this size and significance,” Notre Dame law school professor Jay Tidmarsh, a professor at Notre Dame School of Law.
The parties have until October 19th to submit their approvals or objections with U.S. District Judge John Gleeson in Brooklyn.