Washington—The National Retail Federation (NRF) and a broad cross-section of retailers asked a federal judge on Tuesday to reject a proposed settlement of an antitrust lawsuit over credit card swipe fees.
The NRF and many retailers, who claim that the fees drive up prices for consumers by $30 billion a year, called the proposal a “surrender” that does nothing to address the “evil” of price fixing by Visa, MasterCard and their banks.
“This is an empty settlement,” said Mallory Duncan, NRF senior vice president and general counsel. “It fails to address the price fixing that harms merchants and their customers, it takes away retailers’ legal rights to ever try again, and it offers virtually nothing in return. It should be tossed out of court as the failure that it is.”
“What the class plaintiffs have agreed to is not a settlement–it is surrender,” NRF said in a brief filed with U.S. District Judge John Gleeson in Brooklyn, N.Y. “The settlement fails to address the core evil that motivated this class action and that continues to plague the industry: the outsized economic power of and the manipulation of interchange rates by Visa, MasterCard and their constituent banks.”
NRF and retailers who supported the brief have opted out of money offered under the settlement because of accompanying restrictions on future legal action. But the unusual structure of the settlement does not give retailers the opportunity to opt out of proposed injunctive relief that would come with additional onerous restrictions including restraints on legal action. Without the ability to fully opt out, retailers would lose the right to file lawsuits over the fees and other restrictive rules if the settlement wins final approval at a hearing set for September.
About 20 Major Retailers Join Protest
Under the settlement, Visa, MasterCard and the banks agreed to pay $6.05 billion to a class that could include eight million merchants and temporarily reduce interchange fees by an amount equal to $1.2 billion. Visa and MasterCard also agreed to drop their bans on surcharging customers who pay with credit cards, a change that took effect in January.
A May 28 deadline to opt out of the settlement, which is pending in the Brooklyn court, has resulted in a flurry of opt-out notices and statements from large and small retailers in recent days.
Last Thursday, Target Corp., Macy’s Inc., Saks Inc, and other retailers filed suit against Visa and MasterCard alleging similar antitrust behavior. The retailers charge in that suit, filed in U.S. District Court in Manhattan, that previous efforts to curb such behavior have failed.
Other large retailers, including Wal-Mart Stores Inc., Starbucks Corp. and Gap Inc., said Monday they intended to opt out of the settlement and may bring additional suits against the payment networks.
“Retailers simply cannot understand how the American system of justice can permit class action lawyers whom they have never met and who know nothing about their business to craft a ‘settlement’ that will preclude them forevermore from seeking redress on future losses without so much as offering them the opportunity to opt out,” NRF said. “It gives the credit card networks carte blanche to set and manipulate interchange rates going forward without fear of future private suits. There is nothing that the credit card networks could give that is worth this unbridled loss of control.”
The deal also has drawn protests from partners of Visa and MasterCard over concerns that they would be subject to the settlement’s provisions releasing the payment networks from certain litigation in the future.
Among the NRF members filing statements as part of the brief included are Neiman Marcus, Tiffany, J. Crew, Gap Inc., Brooks Brothers, Talbots, Estee Lauder, Crate & Barrel, J. Crew, New York & Co., Express, Brookstone, rue21, Destination XL, and Pacific Sunwear. In addition, Stephen I. Sadove, chairman/ceo of Saks Inc., filed a statement in his capacity as chairman of the NRF Board of Directors.
NRF opposes the settlement because it fails to reform the price-fixing system under which Visa and MasterCard set the schedule of swipe fees followed by the thousands of banks that issue their credit cards, or to introduce transparency that would lead to competition to lower the fees. Rather than lowering the fees, the card companies have proposed that the fees be passed along to consumers in the form of a surcharge, even though most major retailers have rejected surcharges as the opposite of what they have sought during the years-long fight over swipe fees. Despite a few “illusory” changes in credit card rules, NRF said the settlement does nothing to lower the fees or to keep them from increasing in the future.
Swipe Fees Amount to $30 Billion a Year
Retailers who do not opt out of the monetary portion of the settlement–and thereby become fully bound by the restrictions of the agreement–will be eligible for a share of $7.25 billion. But the figure amounts to less than three months’ worth of swipe fee charges, and the small retailers hit hardest by the fees could unwittingly give up their rights for as little as a few hundred dollars.
Rather than being brought by the retail industry as a whole or by a majority of major retailers, the suit was filed in 2005 by six trade associations and 13 retail companies, most of them individual stores or small chains. The settlement was drafted without input from other retailers, and was ultimately rejected by a majority of the original plaintiffs, including all of the associations, when it was unveiled last summer. NRF, like most merchants, is not a party to the lawsuit, but has led the retail industry’s opposition to the settlement because NRF member companies would be dragged into its terms as part of the class action.
Averaging about 2%, 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. Officially known as “interchange,” the fees have tripled over the past decade and drive prices up for the average household by more than $250 per year, the NRF said.