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Settlement Approved Between Retailers and Credit Card Issuers

U.S. District Judge John Gleeson has approved a new settlement between banks and retailers regarding credit card swipe fees. The case filed in 2005 by a relatively small group of retailers and merchants turned into a lengthy legal battle with over 400 depositions and an estimated 80 million pages of documents exchanged. The retailers and merchants originally filed the case to protest the pricing set by Visa, MasterCard, and banks that issue credit cards.

Judge Gleeson emphasized in his 55-page ruling the need to encourage competition through the settlement regarding credit card swipe fees. Credit card purchases are now permitted to have surcharges by the merchant or retailer on the transactions. Additionally, Visa and MasterCard are expected to pay an estimated $5.7 billion to the merchants and retailers who did not opt-out of the case.

Not all retailers are happy with the settlement as a large number of them chose to opt-out of the case’s payout. Retailers complain that the settlement fails to have countermeasures to prevent swipe fees from rising in the future. They feel that the settlements fall short of protecting retailers from Visa and MasterCard’s anticompetitive behavior and that in the future the credit card giants may again create swipe fees that violate anti-trust laws.

Judge Gleeson’s solution to the hidden fees that so negatively impact retailers when handling credit card transactions is to permit merchants, for the first time ever, to display the fees to customers. The intention is to educate customers regarding banks’ credit card transaction processing and thereby influence their choice of payment method.

Retailers object to this facet of the settlement because not all retailers will display the fees as some state laws don’t allow the fees to be displayed and welter rules can make displaying the fees to the customer difficult for the retailer. Other retailers may not display the hidden fees as a competitive strategy as they would then appear to be ‘absorbing’ the fees and favoring their customers.

Time will tell the impact of the card swiping settlement with regard to retail practices, new merchant surcharges, and the new rules regarding hidden fees. Retailers are not universally happy with the resolution of the lawsuit of eight years despite the concessions and large payout on half of Visa, MasterCard, and the banks. Judge Gleeson concluded in the settlement that even if Visa and MasterCard are practicing anti-competitive behavior additional dominoes must first begin to fall before they can be hit with a successful anti-trust lawsuit.

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