Bloomberg News

Visa, MasterCard $7.25 Billion Fee Deal Wins Approval

November 10, 2012

Visa Inc. (V:US) and MasterCard Inc. (MA:US)’s proposed $7.25 billion settlement of a merchant fee price-fixing case won preliminary approval from a federal judge in Brooklyn, New York.

U.S. District Judge John Gleeson made his ruling in court yesterday after considering arguments by retailers opposed to the deal. The judge’s decision allows plaintiffs to begin signing up more than 7 million retailers that might be eligible to participate. The settlement will be subject to a final approval at a later date.

“I don’t mean to suggest for a moment that there are not a number of issues that are going to require significant scrutiny,” Gleeson said. “I’m not persuaded that the deficiencies are the obvious deficiencies that ought to derail preliminary approval.”

Estimated to be the largest-ever antitrust settlement, the deal would end a seven-year-long case alleging that the card companies conspired with major banks to fix interchange, or swipe, fees charged to merchants when customers pay with plastic. Retailers opposed to the deal claim it forces them to give up too many rights to sue over card company practices in the future.

After the hearing, representatives for Purchase, New York- based MasterCard and Foster City, California-based Visa said they were pleased with the decision.

‘Fair, Reasonable’

“Our belief that the agreement will eventually receive final approval was strengthened today,” Visa General Counsel Josh Floum said yesterday in a statement. “As we have said from the beginning, this settlement is a fair and reasonable compromise for all parties.”

Opponents of the deal said they are exploring legal options, including the possibility of an appeal.

“We respectfully disagree with the court’s assessment of the proposed settlement,” said Mallory Duncan, general counsel of settlement opponent the National Retail Federation, in a statement. “Retailers, their customers and competition would suffer irreparable harm if this one-sided deal is allowed to move forward.”

Several trade groups and about 1,200 retailers, including Target Corp., Wal-Mart Stores Inc. (WMT:US), Home Depot Inc. (HD:US), Neiman Marcus Group Inc., and Saks Inc. (SKS:US), are opposed to the deal, according to court papers.

‘Not Daunted’

In an Oct. 24 order, the judge said the deal would likely meet requirements for the initial sign-off, a threshold he said is “meaningfully lower” than that of a later final approval. Still, lawyers for the opponents were hopeful they could change his mind, given that there were provisions in the deal allowing some elements they claim are unfair to go into effect at the preliminary stage.

“We’re not remotely daunted by this ruling,” said Jeffrey Shinder, a lawyer for some of the settlement opponents, after the hearing. “I have every expectation the opposition will only intensify as this process proceeds.”

The settlement includes $6.05 billion in cash payments and a temporary interchange fee abatement, which plaintiffs estimate will bring the total to about $7.25 billion. A separate group of large merchants including Kroger Co., (KR:US)Walgreen Co. (WAG:US) and Safeway Inc., (SWY:US) struck their own deal with the card companies over the fees, adding to the amount, according to court filings.

‘Far Below’

Opponents of the settlement say the total is far below what could have been won if the case went to trial. Damages might have been as much as $300 billion, a lawyer for one group of objectors said in an Oct. 18 court filing, referring to an August analysis by Georgetown University law professor Adam Levitin.

The objectors also argued that the settlement contains overbroad releases protecting Visa and MasterCard from future lawsuits by retailers, including those not yet in existence, over a wide spectrum of the card companies’ practices. A twist in the structure of the settlement prevents retailers from opting out of that part of the deal, lawyers for the objectors contended.

Stephen Neuwirth, an attorney for Home Depot, said that the company is particularly concerned with the legal releases.

“It’s so obvious Visa and MasterCard were prepared to make a large payment because of the scope of the releases being given,” he said. “It’s all one quid pro quo and merchants like the Home Depot are being denied the chance to opt out of that quid pro quo and say this is a bad deal.”

Dropped Out

Plaintiffs in favor of the deal include Payless ShoeSource Inc. and eight other businesses including Photos Etc. Corp., Discount Optics Inc. and Leon’s Transmission Service Inc., according to court papers.

Another 10 retailers and trade groups that were previously among the plaintiffs named in the suit decided to drop out of the deal after it was made public in July.

During the hearing yesterday, lawyers for plaintiffs in favor of the settlement said the objectors were misinformed or had other agendas.

Patrick Coughlin, a lawyer for plaintiffs favoring the deal, said that some large merchants oppose it because they are starting a competing payment network, the Merchant Customer Exchange. The exchange, or MCX, was formed by merchants including Target Corp. (TGT:US) and Wal-Mart Stores Inc., which also oppose the settlement.

“That’s what I believe is at the root of some of the large merchants that form the basis of the objections,” Coughlin told Gleeson in a standing-room-only courtroom, adding that the opposition is “literally orchestrated by a small 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).

To contact the reporter on this story: Christie Smythe in New York at csmythe1@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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Companies Mentioned

  • V
    (Visa Inc)
    • $213.55 USD
    • 2.62
    • 1.23%
  • MA
    (MasterCard Inc)
    • $74.76 USD
    • 0.24
    • 0.32%
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