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News Now

CU System
Retail heavyweights file opposition to interchange settlement
NEW YORK (11/5/12)--A group of large retailers Friday requested a Federal judge to reject a proposed settlement in the retailers' class action antitrust lawsuit against Visa and MasterCard over credit card interchange fees.

The retailers said the settlement would not bring credit card swipe fees charged by Visa and MasterCard under control and does not give merchants who oppose it an adequate mechanism to opt out.

Among the retailers joining the court filing were Target, Macy's J.C. Penney, The Gap, Neiman Marcus, Abercromie & Fitch, Papa John's and the National Retail Federation. The 19 companies represent more than 17,000 separate retail outlets and more than $150 billion in annual sales, said court documents.

In a brief filed Friday in the U.S. District Court, Eastern District of New York, Brooklyn, the retailers argue the settlement cannot legally be certified as a class action because it attempts to force a one-size-fits-all solution onto a diverse group of merchants. Retailers also argued that a provision barring all retailers--including those who opt out of the settlement--from filing future lawsuits over swipe fees is impermissibly broad under federal law.

Credit unions are not involved in the lawsuit, but they and other financial institutions would be affected by the settlement's terms. The $7.5 billion settlement would require a reduced interchange rate fee (IRF) of 10 basis points for an eight month period, likely beginning in mid-2013, and would apply to all card issuers, including credit unions (News Now Nov. 1).

If the total credit IRF reduction is $1.2 billion, credit unions with credit card programs would lose about $50 million in total revenues, or about 0.5 basis points on their total assets, Credit Union National Association said. The loss would be concentrated among a relatively small number of credit unions with very active credit card programs.

The proposed settlement also calls for Visa, MasterCard and the banks to create a $6.05 billion fund to repay retailers for past fees charged and says retailers would be permitted to assess "check out" fees or surcharges on credit card purchases, which has previously been prohibited by Visa and Mastercard rules.

The surcharging aspect of the settlement--as well as the provision that consumer-owned credit unions would see a reduction in interchange revenue--are signs that the settlement does nothing for consumers, CUNA President/CEO Bill Cheney has said. Interchange revenue enables credit unions to provide "essential and cost-effective credit card services" to members. "We also know that the temporary reduction in interchange revenue that credit unions will experience will not likely find its way into the pockets of consumers, but will more likely into those of merchants," Cheney said.


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