On the morning of March 26, news outlets started reporting a landmark settlement in longstanding litigation between Visa, Mastercard and the largest card-issuing banks on the one hand and the merchant community on the other hand over credit card operating rules. The proposed settlement was made to seem like a win for retailers, who would see $30 billion in relief from swipe fees. What soon became clear in the details of the settlement, which was leaked to the press by the credit card industry, was that it was a sweetheart deal for them and a raw deal for retailers and their customers.

Where It Began

In 2005, NACS and other retail groups and companies filed suit against Visa, Mastercard and their largest issuers over the industry’s price fixing of interchange fees and onerous rules. The many lawsuits were consolidated into a case titled “In Re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation.” The cases collectively sought relief from the courts over the credit card industry’s clear violation of the antitrust laws.

In 2012, a landmark settlement was reached in the case, but it became quickly clear that the settlement was not helpful, and even harmful to retailers. It would have allowed Visa and Mastercard to continue their worst business practices while preventing current and future retailers from ever pursuing litigation against Visa and Mastercard in the future. NACS led a group opting out of and objecting to the settlement. NACS President and CEO Henry Armour noted, “The people asking the court to approve the proposed settlement simply do not represent the interests of most merchants; we do. The proposal represents a minority view and must be rejected.”

The Second Circuit, which heard the appeal of the settlement, ended up throwing it out completely. It was a major legal victory for NACS and other retailers and gave new life to the litigation. At that point, the litigation was bifurcated with two sets of lawyers representing two classes of merchants, one seeking monetary relief and one dealing with the operating rules of the card networks (though virtually all merchants that didn’t opt out were part of both classes).

In 2019, a monetary settlement of $5.5 billion was reached. That monetary-only settlement is moving forward.

The proposed settlement reached in late March dealt only with the Visa and Mastercard operating rules, not money. Unfortunately, the problems with that settlement were deja vu all over again for retailers.

Deja Vu

The proposed settlement does not look much better than the one NACS successfully fought in 2012. The biggest problem is that the proposed settlement preserves and cements Visa and Mastercard’s ability to price-fix for their issuers and require retailers to take all of their cards (or none of them) no matter how expensive they are and without regard to the banks’ refusal to compete with each other on price and service. This cartel behavior, and the egregious fees that result from it, was the main reason for seeking relief from the courts. Without addressing it, Visa and Mastercard will keep extracting fees that are much higher than a competitive market could bear.

The settlement is “mandatory” which means that it would bind all litigants—including those in the separate suits that NACS and others who opted out of the case have been pursuing for years. If approved, the settlement would cut off any legal rights to injunctive relief and rules claims for the next five years other than what is in the settlement. And, what’s in it won’t help retailers.

The proposed settlement does not look much better than the one NACS successfully fought in 2012.

While the proposed settlement purports to lead to approximately $30 billion in swipe fee savings for merchants over five years, it won’t do that because it includes a major loophole. The settlement says that Visa and Mastercard can increase the network fees that they directly charge retailers at any time and by as much as they want. And that is already happening. On April 15, Mastercard moved forward with network fee increases of $260 million. Additionally, Visa and Mastercard could turn around and give the banks discounts on what they pay to handle transactions without retailers knowing it.

The proposed settlement claims to help merchants with surcharging, yet retailers can’t really take advantage of that unless they stop taking American Express and Discover cards. Remarkably, that makes the settlement a bigger win for Visa and Mastercard in cementing their market dominance than anything in it helps merchants. And, surcharging is not a good answer to Visa and Mastercard’s abusive rules. Rather than addressing the root cause of the problem, it makes retailers the bad guy with their customers by forcing them to collect big fees for the credit card industry.

All of the other provisions of the settlement include fatal loopholes and shortcomings as well.

What’s Next

NACS and other merchant groups have urged the court to reject the settlement. The court will go through a process of preliminary and then final consideration of the agreement. At each stage NACS and its members will have the opportunity to provide the court with their views of the deal. Contact NACS to find out more about how to make sure your voice is heard.

The fact that 20 years of litigation has led to two settlements that harm merchants underscores the power of the Visa and Mastercard duopoly, the limits of the legal system to deal with it, and the need for congressional intervention. NACS continues to urge Congress to pass the Credit Card Competition Act, which would finally make Visa and Mastercard compete for retailers’ business on every credit card transaction. Real relief is needed. And, we will only get it if you take action. You can scan the QR code to tell your members of Congress to help today.