Retailers Welcome Judge’s Order Rejecting Flawed Settlement Over Visa and Mastercard ‘Swipe’ Fees

“This settlement was never agreed to by the retail industry as a whole and would have done nothing to end anticompetitive practices and fix our nation’s broken payments market.”

NRF CAO and General Counsel Stephanie Martz

WASHINGTON – The National Retail Federation welcomed a federal judge’s order today rejecting 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 was never agreed to by the retail industry as a whole and would have done nothing to end anticompetitive practices and fix our nation’s broken payments market,” NRF Chief Administrative Officer and General Counsel Stephanie Martz said. “The proposed reduction in swipe fees was tiny and temporary and ignored the underlying issue of how these fees are centrally set rather than allowing banks to compete to offer the best rates. We’re glad the judge has seen this backroom deal for what it is so we can move forward to real relief from these ever-increasing fees that drive up costs for small businesses and prices for American families.”

U.S. District Judge Margo Brodie this morning issued an order saying “the court finds that it is not likely to grant final approval to the settlement and accordingly denies plaintiff’s motion for preliminary settlement approval.” The order followed remarks Brodie made during a June 13 hearing that she was unlikely to approve the settlement, citing concerns after NRF and other merchant groups said it would not provide adequate relief.

Attorneys for NRF wrote in a letter to Brodie in April that the proposed settlement would have failed to end Visa and Mastercard’s practice of centrally setting swipe fees charged by all banks that issue their cards. It also failed to reverse a controversial “honor all cards” rule requiring merchants to accept all cards from each network regardless of fees.

proposed settlement of the 19-year-old lawsuit was announced in March. Under the settlement, Visa and Mastercard would have reduced rates for each swipe fee category by four basis points for three years and average rates by seven basis points for five years. But credit card swipe fees currently average 2.26% of the transaction – 226 basis points – and NRF said the proposed reduction was “a drop in the bucket.”

The rate reduction would have saved merchants an average $6 billion a year but comes as swipe fees for Visa and Mastercard credit cards totaled $100 billion last year. In addition, the agreement applied only to “interchange” fees that go to card-issuing banks while Visa and Mastercard would be free to raise “network” fees they receive, potentially offsetting any savings.

Other parts of the settlement were “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. While the agreement would have provided only temporary relief, it included a “virtually limitless” ban on future merchant litigation over swipe fees and had no opt-out provision for merchants who did not agree with its terms.

The letter said the settlement’s failures came largely because attorneys for the small group of named plaintiffs – five small businesses claiming to represent the entire retail industry – had “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.