WASHINGTON (7/16/12)--Reduced credit card interchange rate fees--mandated as a result of an historic lawsuit settlement between merchants and credit card companies--could cost credit unions with credit card programs up to a total of $50 million, according to estimates by the Credit Union National Association (CUNA).
Visa, MasterCard and several large banks, defendants in a lawsuit brought by groups of merchants and their trade associations, on Friday agreed to pay billions to merchants to settle a long-standing credit card interchange fee class action lawsuit. In addition, the settlement requires a reduction in credit card interchange rate fees (IRF) of 10bp for an eight-month period, likely beginning in mid-2013.
The rate reduction applies to all card issuers, including credit unions.
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 bp on their total assets, CUNA Chief Economist Bill Hampel said. This loss would be concentrated among the relatively small number of credit unions that have very active credit card programs, he noted.
The National Association of Convenience Stores on Friday rejected the settlement. However, the Electronic Payments Coalition (EPC) attributed that position to the trade groups' interest in keeping its damage claims alive.
EPC, in a statement, also said that, with the exception of NACS, all other class representatives through their court appointed lead counsel have "determined that this settlement is in their best interests as well as the millions of other merchants they represent." The settlement resolves all competitive issues between merchants and the networks, EPC said.
According to press reports over the weekend, some merchant groups, including the National Community Pharmacists Association and the National Grocers Association, said that they are still reviewing the court documents and assessing its impact on their members.
Other aspects of the settlement include:
- Visa, MasterCard and the banks would create a $6.05 billion fund (a record amount for a class action settlement) to repay retailers for past fees charged.
- 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.
CUNA President/CEO Bill Cheney said that 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.
"We all know that interchange revenue enables credit unions to provide essential and cost-effective credit card services to their consumer 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.
However, the credit union leader added that "importantly, this settlement means the issues in this case are now closed, once and for all."