Judge approves credit card swipe fee settlement, NRF considers appeal

A federal judge today approved a controversial settlement of an antitrust lawsuit over credit card swipe fees, dismissing objections from NRF and thousands of others as “needless hyperbole” and praising a provision for surcharges even though it has been widely rejected by major retailers across the country.

“The oral presentations of the objectors at the fairness hearing were afflicted by needless hyperbole,” Judge U.S. District Court Judge John Gleeson said, citing arguments that “cast Visa and MasterCard as modern-day Nazis and warned me not to assume the role of Neville Chamberlain.”

“If only the issues here were that simple,” the Brooklyn judge wrote in a 55-page opinion. “But in reality the vitriol and poor behavior and feigned hysteria mask complex and difficult issues on which reasonable merchants can and do disagree. Some of those issues stem from the fact that a lawsuit is an imperfect vehicle for addressing the wrongs the plaintiffs allege.”

Gleeson cited a “small number of objectors” to the settlement even though it was formally rejected by more than 8,000 merchants including many of the nation’s largest and best-known brands. The lawsuit was originally brought by 19 retailers and trade associations, but all but nine rejected the proposed settlement when it was unveiled in 2012. Most of those remaining were individual stores or small chains. NRF was not a party to the suit, but has fought the settlement because its class-action status would impose its terms on thousand of federation members.

“We are very disappointed that this deeply flawed settlement has been approved,” NRF Senior Vice President and General Counsel Mallory Duncan said. “It is not supported by the retail industry and would do nothing to reduce swipe fees or keep them from rising in the future. The settlement permanently ties the hands of thousands of businesses who wanted nothing to do with this misguided case, and a decision to approve it violates established law and common sense.”

“We will confer with our members, but given the amount of anger toward this settlement, I fully expect we will appeal,” Duncan said. 

NRF argued against approval of the settlement at a hearing in September, saying it fails to reform the price-fixing system under which Visa and MasterCard set swipe fees followed by banks that issue their credit cards, or to introduce transparency that would lead to competition to lower the fees. Instead, the card companies proposed in the settlement that the fees be passed them along to consumers as a surcharge.

Gleeson portrayed the surcharge provision as the answer to soaring swipe fees, saying it would allow retailers to “expose hidden bank fees to their customers” and ultimately “stimulate the sort of network price competition that can exert downward pressure” on swipe fees.”

But most major retailers have rejected surcharges, saying they would further drive up bottom-line prices for consumers rather than achieving the lawsuit’s goal of lowering the fees and, in turn, lowering the total paid by consumers. At least 10 states bar surcharges by law.

Averaging about 2 percent, swipe fees are a percentage of the transaction taken by banks each time consumers swipe a credit card to pay for a purchase, and total about $30 billion a year nationwide. The fees have tripled over the past decade and drive prices up for the average household by more than $250 per year.