Bloomberg News

Durbin Sees Visa Accord Thwarting Push to Cap Card Fees

August 13, 2012

U.S. Senator Richard Durbin’s office told retailers that their efforts to have Congress rein in credit-card swipe fees will be imperiled if they support a $6.6 billion settlement with Visa (V:US) Inc. and MasterCard Inc. (MA:US)

“This is going to foreclose the prospect of good legislation for the foreseeable future,” Dan Swanson, senior judiciary counsel for the Illinois Democrat, said in a conference call with the Food Marketing Institute. “It will essentially be game over.”

Durbin, the majority whip, won the inclusion of limits on debit-card swipe fees, or interchange, in the 2010 Dodd-Frank Act. That trimmed annual revenue for the biggest U.S. banks by about $8 billion and benefited retailers including Wal-Mart Stores Inc. (WMT:US) and Target Corp. (TGT:US) Credit-card swipe fees are higher and generate about $40 billion a year for lenders such as JPMorgan Chase & Co., Bank of America Corp. (BAC:US) and Citigroup Inc. (C:US)

Max Gleischman, a Durbin spokesman, confirmed that Swanson discussed the settlement with the Food Marketing Institute and National Retail Federation. He declined to say whether Durbin, the Senate’s No. 2 Democrat, will push for more legislation or if merchants’ approval of the accord would damage such efforts.

Retailers should “think hard” before taking the deal, Durbin said Aug. 2, according to the Congressional Record. He called it a “stunning giveaway” to Visa and Purchase, New York-based MasterCard.

Visa dropped 0.6 percent to $128.32 in New York, and MasterCard declined 0.1 percent to $425.63.

Antitrust Case

The Food Marketing Institute, a trade group whose members include Target, Sears Holdings Corp. (SHLD:US) and Bentonville, Arkansas- based Wal-Mart, doesn’t have a position on the settlement, said Heather Garlich, a spokeswoman for the Arlington, Virginia-based organization.

Visa, MasterCard and banks agreed last month to resolve the seven-year-old antitrust case. In addition to cash payments, the deal includes a temporary reduction in credit-card swipe fees and allows retailers to impose surcharges on such transactions. The accord requires the approval of U.S. District Judge John Gleeson in Brooklyn, New York, may be nullified if enough merchants refuse to join the proposed class action.

‘Complex Dispute’

“In our view, if this settlement is finalized, or even if it’s preliminarily approved, merchants had better be sure this is going to fix the interchange problem,” Swanson said in the conference call last month with the Food Marketing Institute.

Earlier this month, his boss said it wouldn’t.

“The settlement does nothing to change the anticompetitive fee-fixing that Visa and MasterCard do on behalf of their member banks,” Durbin said. “In fact, it gives Visa and MasterCard broad and permanent legal immunity to continue doing exactly that in the future.”

The Electronic Payments Coalition, which represents banks, MasterCard and San Francisco-based Visa, has said that Congress shouldn’t interfere.

“The legal system was and is the appropriate system to resolve a large and complex dispute between companies, not Washington,” Trish Wexler, a spokeswoman for the trade group, said last week.

Retailers, even if they reject the settlement, still may struggle to push more interchange regulation through Congress, which approved the Dodd-Frank financial regulatory overhaul when Democrats controlled both chambers. Durbin abandoned efforts to cap credit-card fees after failing to persuade enough colleagues to support them, and Republicans, most of whom opposed the debit caps, now control the U.S. House.

Checking Accounts

The payments industry escaped earlier attempts to regulate interchange on credit cards, which average about 2 percent of each transaction, saying the fees are needed to compensate banks for the risk of lending money. That argument isn’t relevant to debit cards, which tap funds held in consumer checking accounts.

The National Retail Federation, which criticized the settlement, hasn’t advised members to oppose it, said Mallory Duncan, the trade group’s general counsel. Members of the NRF, which describes itself as the world’s largest retail trade group, include Macy’s Inc. (M:US) and Gap Inc. (GPS:US)

“Senator Durbin doesn’t have to gin up opposition to this settlement,” Duncan said in an interview. An “overwhelming majority” of NRF members already don’t support it, he said.

Wal-Mart urged all merchants to reject the agreement, saying it would limit their right to take legal action against Visa and MasterCard, the world’s biggest bank-card networks, and constrain payments-industry innovation. Target, based in Minneapolis, said the accord would “perpetuate a broken system,” according to a July 20 statement on its website.

‘Washington Game’

The National Community Pharmacists Association, National Association of Convenience Stores and National Grocers Association, all named plaintiffs in the lawsuit, said they oppose the settlement. Their position doesn’t stem from concerns that support would diminish chances that Congress will act, said Jeffrey Shinder, a lawyer for the three groups.

“The suggestion that this is just some kind of Washington game cannot withstand any scrutiny when you look at what’s going on out there,” Shinder said in a phone interview.

Peter Larkin, chief executive officer of the National Grocers Association, said on July 27 that his group plans to push for more legislation.

‘Further Reforms’

“It’s hard to predict what Congress will do and won’t do,” Larkin said in an interview. “It would be our intention to continue to talk to Congress because we think we need to achieve further reforms.”

The proposed settlement must be submitted to Gleeson by Oct. 19. If he gives preliminary approval, notice of the deal will be sent to members of the class, which includes about 7 million U.S. retailers who accepted Visa or MasterCard credit cards since 2004.

Durbin’s comments and the decision by some retailers to reject the settlement isn’t surprising and doesn’t mean the accord won’t be approved, said Glenn Fodor, a Morgan Stanley analyst.

“With 7 million merchants and with this structured the way it was, you can’t keep everyone happy,” Fodor said in a phone interview. “This was well within the realm of expectations.”

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).

To contact the reporters on this story: Matt Townsend in New York at mtownsend9@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

To contact the editors responsible for this story: Robin Ajello at rajello@bloomberg.net; David Scheer at dscheer@bloomberg.net


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Companies Mentioned

  • V
    (Visa Inc)
    • $214.04 USD
    • -0.91
    • -0.43%
  • MA
    (MasterCard Inc)
    • $75.47 USD
    • -0.15
    • -0.2%
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