Retailers reject settlement over swipe fees

For months retailers large and small have stewed over a $7.25 billion settlement proposed by the court with Visa and MasterCard over swipe fees.

On Thursday (Nov. 1) the National Retail Federation and a dozen or so retailers – including Little Rock-based Dillard’s – asked a judge to reject the proposed class-action settlement saying the injunctive relief fails to reform the cartel-like system where Visa and MasterCard set a rigid schedule of swipe fees that all banks follow.

It does nothing to disclose the hidden fees or otherwise create transparency to encourage competition that would lead to lower fees, according the Mallory Duncan, NRF General Counsel.

“The proposal pending before the court does nothing to keep these soaring fees from continuing to drive prices higher for American consumers, and would block merchants who believe in true swipe fee reform from ever having their day in court," Duncan said.

She referred to the settlement as flawed beyond the point of repair.

Bentonville-based Wal-Mart Stores Inc. was not among the 13 retailers named in the recent objection filing, but the retail giant has made no secret of its stance against the settlement.

The retailer recently said it continues to seek reform that would provide transparency and true competition among financial institutions and encouraged all merchants to reject the settlement.

“Walmart, along with a growing number of consumer groups and merchants, is disappointed in the proposed credit card interchange fee settlement. 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. The proposed settlement would require merchants to broadly waive their rights to take action against the credit card networks for detrimental conduct or acts. We believe the proposed settlement would also constrain emerging payments innovation,” the company states on its website.

Duncan says retailers and the NRF question whose interests are being served by the settlement as merchants would get pennies on the dollar, while lawyers have sought three-quarters of a billion dollars to cover their fees.

“Sophisticated retailers who have scrutinized the tentative deal realize it provides relief for no one, and don’t want this blatant endorsement of the credit card industry’s abuses pushed on them or their customers,” she said.

Nearly 1,200 retailers have spoke out against the settlement in previous court filings.

Nine, mostly small merchants, are supporting the settlement and filed a motion with U.S. District Court Judge John Gleeson in Brooklyn, N.Y., on Oct. 19, seeks preliminary approval of the proposal. Oral arguments are scheduled for Nov. 9.

NRF argued in a brief filed Thursday (Nov. 1) that preliminary approval should be denied, saying the settlement cannot legally be certified as a class action because it attempts to force a one-size-fits-all solution onto an wildly diverse group of merchants.

NRF said the unusual structure of the settlement gives merchants who oppose it no mechanism to truly opt out. Rather than being able to opt out entirely, retailers would only be able to reject their share of the $7.25 billion offered as compensation for past price fixing, and would remain bound by flawed injunctive relief that would entrench current card industry practices rather than take steps to limit future fee hikes.

While the $7.25 billion figure has been touted as a record antitrust settlement, NRF and its members believe effective injunctive relief that would keep fees from rising going forward is more important. The amount represents less than three months’ worth of swipe fee collections despite the eight-year period covered by the lawsuit.