Retailers, Credit Card Companies Sue Each Other Over Swipe Fee Settlement

Published May 28, 2013

Seventeen major retailers have filed a federal lawsuit over a $7.2 billion settlement regarding “swipe fees” to process credit card transactions – and card companies Visa and MasterCard have in turn sued the retailers and industry trade groups that want to back out of the settlement.

Target, Macy’s, and Kohl’s are among the retailers that have sued the card companies. Their lawsuit came less than one week before a May 28 deadline for the millions of stores affected by the settlement to decide whether to give up a share of the settlement proceeds and pursue their own legal action. The settlement would end lawsuits on behalf of merchants who contend the credit card companies have been charging inflated swipe fees, also called interchange fees.

Visa, MasterCard and several banks that issue their cards followed that lawsuit with one of their own, arguing the settlement is necessary to avoid “endless, wasteful litigation.” Their lawsuit names individual retailers and industry groups including the National Association of Convenience Stores, National Grocers Association, and National Restaurant Association. The defendants were involved in the lawsuit that led to the proposed settlement and now oppose it.

Awaiting Final Okay

The settlement is awaiting federal court approval in Brooklyn. A hearing on final approval is scheduled for this September. If merchants who make up more than 25 percent of the credit card companies’ total payment volume drop out, Visa and MasterCard may back out of the deal.

Many retailers criticized the proposed settlement after it was announced in July 2012. They complain it gives them too little compensation and forces them to give up possible future legal action against Visa and MasterCard.

In a statement last November, Jeffrey Shinder, a lawyer for retailers and industry trade groups, said the settlement had “fatal legal defects,” particularly legal releases barring the retailers from filing future lawsuits against credit card companies.

Allegations of Monopoly

The case dates to 2005, when retailers filed suit alleging antitrust violations. They contended Visa and MasterCard controlled so much of the credit card market they had a virtual monopoly that enabled them to dictate swipe fees – generally ranging from 1.5 to 3 percent of a transaction.

The proposed agreement would have the credit card companies pay $6.05 billion to retailers, with another $1.2 billion paid in the form of a 10 basis-points reduction in credit interchange rates for eight months. It would also allow U.S. merchants to impose checkout fees on credit cards, subject to certain conditions, such as a cap limiting the surcharge to cost of acceptance.

“We know that merchants care about their customers and anticipate that they will not impose checkout fees, particularly because the value merchants derive from card acceptance far exceeds their costs,” said Noah Hanft, MasterCard’s General Counsel and Chief Franchise Integrity Officer, in a statement.