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Back to Square One: Federal Court Rejects Landmark Interchange Settlement

start_icon_back-to-square-1_BverLast week’s federal court rejection of a 4-year-old $5.7 billion interchange fee settlement has retailers applauding, and Visa and MasterCard gearing up for what could be years of ongoing ligation and perhaps a stop at the Supreme Court.

The suit involving some 12 million merchants, was filed a decade ago and alleged that the two payment card networks improperly fixed interchange fees. A federal appeals court said the proposed deal forced merchants to unfairly give up their rights to sue in the future over swipe fees. The proposed deal “binds in perpetuity, without opportunity to reject the settlement, all merchants who in the future will accept Visa and MasterCard, including those not yet in existence,” the court said.

Visa and MasterCard offered no immediate comment to Paybefore, but MasterCard reportedly was “disappointed” in the ruling and “reviewing” it next steps. The deal, reached after four years of negotiation, was “fair” and “appropriate,” MasterCard said to Bloomberg News.

Visa offered this comment: “Visa is disappointed by the decision of the U.S. Court of Appeals for the Second Circuit. We are reviewing the specifics of the ruling and will decide our next steps. Visa remains committed to working with retailers to grow their businesses and provide them with efficient and valuable payment options.”

The rejection of the deal could lead to a long period of new legal action. “The new litigation could take years,” said Jeffries Group analyst Jason Kupferberg in a research note.

The deal, which was first approved at $7.25 billion in 2012, was opposed by such major retailers as Wal-Mart—which has its own unrelated legal dispute with Visa—and Amazon. The Retail Industry Leaders Association, a trade group with about 200 merchant members, “enthusiastically welcomes the circuit court’s decision to throw out this harmful settlement,” said Deborah White, the group’s executive vice president and general counsel. “Quite simply, the settlement orchestrated by the card networks and banks would have undermined merchants’ legal rights forever and would have allowed Visa and MasterCard to impose higher and higher swipe fees with impunity.”

The National Retail Federation, another merchant trade group, struck a similar tone in its reaction. “This ‘settlement’ was never a settlement on behalf of the retail industry but rather a backroom deal that failed to represent the interests of retailers,” NRF Senior Vice President and General Counsel Mallory Duncan said in a statement. “Now it’s time to seek real reform of these still-skyrocketing fees whether it be in court or in Congress.”

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