The National Retail Federation and the Retail Industry Leaders Association asked an appeals court to overturn a federal judge’s approval of a controversial lawsuit settlement over Visa and MasterCard’s credit card swipe fees, saying it was negotiated by only a handful 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. “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.”
Both organizations filed notices of appeal with the 2nd 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 a December 13, 2013, ruling by U.S. District Court Judge John Gleeson.
“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 said.
The district court approved the antitrust settlement even though NRF, RILA and other opponents argued for more than a year that it failed to reform the price-fixing system under which Visa and MasterCard set fees for credit cards issued by thousand of banks. Rather than lower the fees, the card companies proposed in the settlement that they be passed along to consumers as a surcharge. Major retailers rejected the surcharge proposal, saying it was the opposite of what they had sought.
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. Neither NRF nor RILA was a plaintiff in the case but both have argued against it because its class-action status would impose its terms on thousands of their members. Today’s brief noted that 19 percent of merchants by card volume formally objected to the settlement and that 25 percent opted out, amounting to a “Who’s Who of American merchants.”
The settlement would grant only pennies on the dollar compared with overcharges the lawsuit claimed and small retailers would see as little as a few hundred dollars each. Retailers who reject the monetary settlement would still be bound by other restrictions the court would not allow them to opt out of, including a prohibition on future lawsuits over the fees.
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.
Swipe fees are charged to merchants by banks to process credit card purchases and average about 2 percent of the transaction. They have tripled over the past decade and currently total about $30 billion a year, driving up costs for consumers.