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The National Retail Federation (NRF) and the Retail Industry Leaders Association (RILA) have asked an appeals court to overturn a federal judge's approval of a lawsuit settlement regarding Visa and MasterCard's credit card swipe fees, contending that it was negotiated by only a few 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," explained Mallory Duncan, SVP and general counsel of Washington, D.C.-based NRF. "Given that the judge knew this back-room 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," added Deborah White, EVP and general counsel of Arlington, Va.-based RILA. “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."
Antitrust Settlement Rejected by Many
Both groups filed notices of appeal with the 2nd U.S. Circuit Court of Appeals in New York earlier this year, and more recently followed up with a joint brief asking the court to overturn U.S. District Court Judge John Gleeson’s December 2013 ruling.
The district court approved the antitrust settlement over the objections of NRF, RILA and other groups that it failed to reform the price-fixing system under which Visa and MasterCard set fees for credit cards issued by thousands of banks. Instead of lowering the fees, the card companies proposed in the settlement that they be passed along to consumers as a surcharge. Major retailers rejected the proposal.
The original lawsuit was brought in 2005 by 19 retailers and trade associations, but 10 of the plaintiffs, including all of the associations, rejected the settlement when it was revealed in 2012. NRF nor RILA weren’t plaintiffs in the case, but both have argued against it because as a class action, it would impose its terms on thousands of their members. According to the brief filed by NRF and RILA, 19 percent of merchants by card volume formally objected to the settlement and 25 percent opted out.
Further objections to the settlement are that it would grant only pennies on the dollar compared with the overcharges claimed in the lawsuit, and retailers that reject the monetary settlement would still be bound by other restrictions the court wouldn’t allow them to opt out of, among them a prohibition on future lawsuits over the fees.
NRF and RILA's brief cited a number of legal errors in the decision, such as a failure to adequately balance the monetary relief against the requirement to give up future legal claims, dismissing "substantive and thoughtful" opposition, and disregarding a court-appointed expert’s opinion that the proposal for surcharging was of "uncertain" value and would "have only a small impact" on swipe fees.
Swipe fees have tripled over the past decade and currently come to about $30 billion annually, driving up costs for consumers.