Inside This Issue - News
Some retailers line up against credit card settlement
August 13th, 2012
NEW YORK – After credit card companies and some of the nation’s largest banks agreed to pay more than $7 billion to settle a price-fixing case dealing with swipe fees, the future of the deal was put in jeopardy when several retailers objected to the terms of the pact.
The settlement must still be approved by a federal judge.
“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,” a spokeswoman for Walmart said in a prepared statement.
“The settlement would require merchants to broadly waive their rights to take action against the credit card networks for detrimental conduct or acts,” she said. “We believe the proposed settlement would also constrain emerging payments innovation.”
Walmart is among a growing number of retailers and trade associations urging retailers to reject the $7.25 billion settlement.
Under the terms of the deal reached last month in federal court in Brooklyn, Visa Inc., MasterCard Inc. and more than a dozen of the biggest U.S. banks agreed to pay $6.05 billion to about 7 million retailers.
In addition, the settlement allows retailers to impose surcharges on customer purchases made with credit or debit cards, and the companies agreed to reduce swipe fees by the equivalent of 10 basis points for eight months. The reduction is expected to cost the banks an additional $1.2 billion.
Visa, the world’s largest payments network, would be hit with the biggest charge — nearly $4.4 billion.
“We believe settling this case is in the best interests of all parties,” Visa chief executive officer Joseph Saunders said in a statement.
Less than a week after the settlement was reached, however, retailers and their advocates began to question the deal.
The National Retail Federation, for example, says that the settlement creates so many hurdles to a surcharge that as a practical matter most retailers won’t do it. In fact, laws in 10 states, including Texas, California and New York prohibit surcharges for noncash payments.
At least one retailer, Target Corp., has said it would be unlikely to add a surcharge for customers if the law allows it.
“Target has no interest in surcharging guests who use credit or debit cards in order to allow Visa and MasterCard to continue charging unfair fees,” the company said in a statement.
While admitting that the multibillion payment to retailers was a positive step toward resolving the dispute between the credit card issuers and the 19 retailers that have been battling them in court since 2005, critics of the settlement said it does little to bring about meaningful reform.
“The money is significant, but money is only temporary — it’s here today and spent tomorrow,” NRF senior vice president and general counsel Mallory Duncan says. “What we need are changes in the rules that bring about transparency and competition that would be here for years to come.
“The test will be whether the injunctive relief is meaningful, he says. “Unless it is, the card market will stay broken and neither merchants nor their customers will achieve a long-term benefit. In that case, it would be a missed opportunity.”
Analysts and lawyers who have scrutinized the 100-plus pages of the settlement say it is a complex arrangement that may not yield many benefits for retailers.
“We think the settlement’s much-touted surcharging provisions actually have no real usefulness to merchants,” Bernstein Research senior analyst Rod Bourgeois wrote in a July 23 report.
The way the terms of the settlement are written, he noted, undercut the pact’s stated intent.
For example, if retailers force customers to pay more for using Visa or MasterCard, they essentially must charge consumers who pay via other credit card networks — such as American Express — the same higher price, Bourgeois notes.
That could prove problematic for retailers, he notes, because American Express prohibits merchants from implementing policies that discriminate against its cards, including added fees or discounts that steer customers to different forms of payment.