Visa, MasterCard Pass on Chance to Drop Fee Settlement
By Christie Smythe - Aug 21, 2013 12:01 AM ET
Visa Inc. (V) and MasterCard Inc. (MA) will pursue a multibillion-dollar antitrust settlement with U.S. merchants over credit card fees even though opposition to the deal reached a level that would have allowed the card firms to walk away, according to the head of MasterCard.
U.S. retailers accounting for more than 25 percent of the total volume of credit card purchases have decided to opt out of the settlement, meeting a threshold that permitted the card firms to back out, MasterCard President and Chief Executive Officer Ajay Banga told investors. The settlement, subject to a judge’s final approval Sept. 12 in federal court in Brooklyn, New York, would end a lawsuit brought on behalf of millions of U.S. businesses that accept credit card payments.
Dozens of major retailers, including the world’s largest, Wal-Mart Stores Inc., have alleged the credit card fee deal is unfair and called for other merchants to reject it. Photographer: Paul Sancya/AP Photo
“The defendants as a group had the right to terminate the settlement agreement because the volume threshold of 25 percent was exceeded, but elected not to do so,” Banga said during a July 31 conference call with investors.
MasterCard, based in Purchase, New York, Visa, based inFoster City, California, and some of the country’s largest banks are seeking to end an eight-year-long legal battle over allegations that they fixed rates for the interchange fees paid by merchants that accept those credit cards.
Paul Cohen, a spokesman for Visa, the world’s largest payment network company, declined to comment on the settlement.
Dozens of major retailers, including the world’s largest, Wal-Mart Stores Inc. (WMT), have alleged the credit card fee deal is unfair and called for other merchants to reject it. Almost 8,000 businesses have opted out of the settlement and some have filed their own lawsuits against the card companies and banks.
In November, U.S. District Judge John Gleeson in Brooklyn tentatively approved the settlement, saying that while there were issues that would require “significant scrutiny,” they weren’t serious enough to derail a preliminary sign-off.
Separately, the card firms and U.S. lenders suffered a setback in July on the issue of interchange fees when a federal judge in Washington found that the Federal Reserve had allowed rates to be set too high for debit card payments, causing merchants to be overcharged by billions of dollars.
When U.S. District Judge Richard Leon ruled on July 31, the stock of Visa fell 7.5 percent, the largest drop in two-and-a-half years. MasterCard, the second biggest network, gained 1.5 percent after reporting a profit that beat analyst’s estimates on that day.
The decision, unless overturned on appeal, will force regulators to revisit rules that bankers said would cost them 45 percent of their swipe-fee revenue.
Visa and MasterCard, which were formerly owned by banks and spun off through initial public offerings, collect interchange fees from merchants that are ultimately turned over to banks, according to their financial filings with the U.S. Securities and Exchange Commission.
In the credit card fee case, the size of the estimated $7.25 billion settlement will be reduced by about $1.5 billion in light of the merchants that chose to opt out of the deal, lawyers representing the class of all U.S. retailers said in a court filing Aug. 16. The lawyers said they will also reduce fees they are seeking to about $570 million from about $720 million.
K. Craig Wildfang, a lead lawyer for the plaintiffs, didn’t immediately respond to e-mail and phone messages seeking comment on the case.
Under the settlement agreement, the card companies and banks were permitted to back out of the deal within 10 business days after a final determination was made on whether the opt-outs reached the 25 percent threshold.
Visa CEO Charles W. Scharf said in a July 24 call with investors that the final figures for the opt-outs appeared to be slightly above the 25 percent threshold and were still being calculated as of that date.
“We continue to expect approval from the court sometime in the fall,” he said.
In a statement yesterday, the Electronic Payments Coalition, a group representing the interests of card payment firms and banks, said it remains confident the deal will win final approval.
“While some big box retailers are holding out for more money, there remain millions of smaller businesses that will benefit from this,” said Sam Fabens, a spokesman for the group.
The case is In Re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-01720, U.S. District Court, Eastern District of New York (Brooklyn).
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