Retailers Ask Judge to Reject ‘Drop in the Bucket’ Settlement Over Visa and Mastercard ‘Swipe’ Fees

“This ‘settlement’ is a backroom deal struck without the input of major retailers or the trade associations that protect the interests of small Main Street merchants.”

NRF CAO and General Counsel Stephanie Martz

WASHINGTON – The National Retail Federation today asked a federal judge to reject the proposed settlement of a class-action antitrust lawsuit over “swipe” fees charged to merchants to process Visa and Mastercard credit card transactions.

“This ‘settlement’ is a backroom deal struck without the input of major retailers or the trade associations that protect the interests of small Main Street merchants,” NRF Chief Administrative Officer and General Counsel Stephanie Martz said. “It fails to address anticompetitive practices that lead to ever-rising swipe fees that drive up costs for small businesses and prices for American families. It should be seen for the failure that it is.”

Attorneys for NRF wrote in a letter to U.S. District Judge Margo Brodie that the proposal fails to end Visa and Mastercard’s practice of centrally setting “default” swipe fees charged by all banks that issue their cards rather than letting banks compete to offer the best rates. It also fails to reverse a controversial “honor all cards” rule requiring merchants to accept all cards from each network regardless of fees.

“The proposed settlement does not even approach the type of relief that is required,” the letter said. “The settlement agreement’s minimal relief would always be inadequate without these core terms, but it is particularly so now when the case is on the relative eve of trial after years of litigation. To cram down a settlement with minimal relief after the defendants’ recent summary judgement defeat is deeply unfair.”

proposed settlement of the 19-year-old lawsuit was announced late last month, just weeks after Brodie rejected a motion from Visa and Mastercard to dismiss the case. Under the settlement, Visa and Mastercard would reduce rates for each swipe fee category by four basis points (0.04 of one percentage point) for three years and average rates by seven basis points for five years. But with credit card swipe fees currently averaging 2.26% of the transaction – 226 basis points – “this temporary reduction is but a drop in the bucket,” the letter said.

The rate reduction would save merchants an average $6 billion a year but comes as swipe fees for Visa and Mastercard credit cards totaled $100 billion last year. After five years of “meager and temporary relief,” Visa and Mastercard would be allowed to raise rates again “without restraint,” the letter said. In addition, the agreement applies only to “interchange” fees that go to card-issuing banks while Visa and Mastercard would be free to raise “network” fees they receive, “undercutting any value that the proposed settlement may offer.”

Other parts of the settlement “are impracticable or meaningless,” the letter said, noting a provision that would allow merchants to impose a surcharge on customers who use premium cards that carry higher-than average swipe fees. “Few merchants will do so in the highly competitive retail market,” the attorneys wrote. And doing so would not be possible in states that ban surcharges or limit surcharges to the amount of the swipe fee, which often isn’t known to the merchant at the time of the transaction.

While the agreement would provide only temporary relief, it includes a “virtually limitless” ban on future merchant litigation over swipe fees and has no opt-out provision for merchants who do not agree with its terms. Even businesses that do not yet exist would be barred from suing, a provision that could violate the Sherman Antitrust Act.

The letter said the settlement’s failures come largely because attorneys for the small group of named plaintiffs – five small businesses claiming to represent the entire retail industry – have “effectively frozen us out” despite repeated offers by NRF to assist.

With the settlement failing to make a major impact on swipe fees, NRF has maintained that
Congress still needs to pass the Credit Card Competition Act. The bipartisan bill would require large banks to enable an alternative processing network on Visa and Mastercard credit cards, leading to competition over fees, security and service.

About NRF
The National Retail Federation passionately advocates for the people, brands, policies and ideas that help retail succeed. From its headquarters in Washington, D.C., NRF empowers the industry that powers the economy. Retail is the nation’s largest private-sector employer, contributing $5.3 trillion to annual GDP and supporting more than one in four U.S. jobs — 55 million working Americans. For over a century, NRF has been a voice for every retailer and every retail job, educating, inspiring and communicating the powerful impact retail has on local communities and global economies.