Let your voice be heard on swipe fee proposal

The lawsuits swirling around Visa and MasterCard came to a settlement, which is more of a compromise. It is temporary fix and a fraction of the estimated cost of what is owed to overcharged merchants over the years.

As most businesses are aware by now, the parties to longstanding federal antitrust lawsuits involving Visa and MasterCard swipe fees have reached a proposed settlement.

The proposal involves the payment of approximately $7 billion in damages to merchants in settlement of interchange fee overcharges during the past 10 years. It also involves negotiated injunctive relief, presumably designed to lessen certain adverse aspects of Visa and MasterCard rules. The details of the relief have not yet been fully analyzed by anyone other than the parties.

However, initial indications are that they are, at best, a compromise. While the money is significant, it is also temporary and only a fraction of the estimated $100 billion by which the card industry has overcharged merchants over the past 10 years. We have always maintained that what is needed are changes that bring about transparency and competition so that there is a functioning market, which would result in significantly lower interchange fees, for years to come.

The test will be whether this injunctive relief is meaningful. Unless it is, the card market will stay broken, and neither merchants nor their customers will achieve a long-term benefit, and swipe fees will only go up. In that case, this settlement would be a missed opportunity. Based on what most merchants are telling us, that appears to be the case.

A number are concerned that the settlement does not provide two key elements long sought by retailers: an end to the cartel-like system where Visa and MasterCard set fees that all banks that issue their cards agree to charge, and steps toward transparency, such as disclosing the specific swipe fee charged by each card.

A provision allowing merchants to impose a surcharge on credit card use has been widely reported. But the ability to surcharge is intended as a tool for use in negotiating with the banks to hold fees down rather than a practice that would become widespread among merchants. In addition, it is said, the terms and conditions are so restrictive that surcharging could be difficult. And, of course, merchants want to lower swipe fees so they can lower prices for their customers, not to increase prices. Most merchants have told us they don't believe that surcharging is desirable or that it would fix the problem.

Finally, under the terms of the proposed settlement, businesses would be barred from ever again suing Visa and MasterCard over swipe fees. As a class action, the restriction would apply to all retailers, even those not yet in business. Once the settlement is presented to the judge, he will need to determine whether it should be considered a class action and whether it is generally in the best interest of the merchants who would be included in the class. He will also need to offer retailers the opportunity to opt out of it, reject its terms, and preserve their ability to pursue the litigation either on their own or jointly with other merchants. If they are serious, such opt-outs (or objections or other actions) often can achieve meaningful improvements compared to the original negotiated settlement.

This settlement is only a proposal at this time, but hearings that would begin the process of making it final could come as soon as September. Before then, businesses – both those supporting the settlement and those with concerns – need to make their positions known, by letter or otherwise, to Judge John Gleeson, U.S. District Court, Eastern District of New York, 225 Cadman Plaza East, Brooklyn, N.Y. 11201 as soon as possible. Please also send a copy to RMANH as well at rmanh@rmanh.com or RMANH, 35A South Main Street, Concord, N.H. 03301.