Retail Groups Ask Court to Overturn Credit Card Swipe Fee Settlement

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On Monday, June 16, the National Retail Federation (NRF) and the Retail Industry Leaders Association (RILA) urged an appeals court to overturn a federal judge’s approval of a controversial lawsuit settlement over Visa and MasterCard’s credit card swipe fees. The groups argued that the settlement was negotiated by only a small group of merchants and would do nothing to bring the fees under control.

“The truth is that there is no settlement with the retail industry, only an agreement with a handful of merchants who do not represent the industry as a whole,” NRF Senior Vice President and General Counsel Mallory Duncan said in a statement. “Given that the judge knew this backroom deal was opposed by a broad range of small and large retailers alike and allows these fees to continue to skyrocket, it clearly should never have been approved. This is a serious mistake the appellate court needs to correct.”

“The retail community remains fully committed to fighting this flawed settlement and addressing the fundamental lack of competition in the electronic payments market,” RILA Executive Vice President and General Counsel Deborah White said. “Quite simply, the proposed settlement not only undermines merchants’ legal rights and fails to restrain Visa and MasterCard’s ability to increase swipe fees with impunity, but it also has broad implications on the rights of others in future meritorious class action cases.”

In December last year, a U.S. district court judge gave final approval to the $7.25 billion swipe fee settlement reached in 2013 in a class-action lawsuit brought against Visa, MasterCard, and a group of card-issuing banks. The court concluded that the settlement “secures both a significant damage award and meaningful injunctive relief.”

The 2005 lawsuit was brought by 19 retailers and trade associations, but 10 of the plaintiffs, including all of the associations, rejected the settlement when it was unveiled in 2012. Additionally, almost 8,000 merchants, representing at least 25 percent of Visa and MasterCard volume, had opted out of the antitrust lawsuit settlement, including 10 of the original 19 named class plaintiffs. In addition, three associations — the American Booksellers Association, the National Association of College Stores, and the National Retail Federation — and 17 retail and restaurant companies filed a brief in opposition to the settlement.

The groups had appealed preliminary approval of the settlement in December 2012. The groups argued that the settlement locks in a broken interchange system, deprives merchants of their right to fight what they contend are anticompetitive practices of Visa and MasterCard in court, and constrains innovations, such as mobile technology, that could bring competition to the marketplace. They further noted that the settlement amounted to less than two months’ worth of swipe fees, based on the estimated $50 billion in swipe fees collected by the credit card companies on an annual basis.

In April 2013, ABA recommended that members opt out and object to the settlement. In an e-mail to members, ABA CEO Oren Teicher said this option was the “most complete way” for booksellers to express their opposition to the settlement.

NRF and RILA filed notices of appeal with the Second U.S. Circuit Court of Appeals in New York earlier this year, and followed up today with a joint brief asking the court to overturn the December ruling.

“A broad cross section of the American retail industry numbering thousands of businesses from iconic national department store chains and general merchandise chains to apparel outlets, specialty shops, restaurants, and one-location Main Street stores thoughtfully analyzed the settlement and concluded that it offers them no benefit,” the brief said. “While a settlement this skewed was bound to be unpopular, the extent of dissatisfaction within the retail industry has been extraordinary.”

“Approval of a mandatory settlement of such breathtaking scope in the face of widespread and substantive objection is unprecedented and warrants reversal,” the brief continued.

The brief cited a number of legal errors in the decision, including failure to adequately balance the monetary relief against the requirement to give up future legal claims, dismissing “substantive and thoughtful” opposition and ignoring a court-appointed expert’s opinion that the proposal for surcharging was of “uncertain” value that would “have only a small impact” on swipe fees.