BROOKLYN, N.Y. (5/29/13)--Visa Inc. and MasterCard Inc.Friday filed a lawsuit seeking declaratory judgment from a Brooklyn, N.Y., federal court against 11 retail organizations that opted out of a $7.25 billion interchange settlement proposal in an antitrust lawsuit against the card companies.
The card companies seek a declaration from the U.S. District Court Eastern District of New York that their fee practices from Jan. 1, 2004, to the proposed settlement date of Nov. 27, 2012--the period in which merchants opting out could seek damages under the interchange settlement--did not violate the federal and state antitrust laws.
Monday was the deadline for nearly eight million retailers to opt out of the proposed settlement, which would end an eight-year battle over fees the card companies charge merchants. Last week Wal-Mart and 18 other major retailers said they would opt-out and consider separate legal action. They indicated the settlement offers inadequate compensation for the billions of dollars they pay in interchange fees each year and forces them to sign away rights to initiate future lawsuits over antitrust issues (Reuters May 24).
"A declaration in plaintiffs' (card companies) favor...is necessary to prevent the continuation of endless, wasteful litigation between defendants and plaintiffs," argued the Visa and MasterCard motion, noting that the settlement isn't the first between the card companies and the merchant community. It referred to a Visa check litigation settlement in 2003 in which Visa paid a "substantial sum of money." That settlement did not stop other litigation, such as the interchange fee litigation.
The lawsuit names only organizations that originally were party to the negotiations of the proposed settlement but who opted out. They include the National Association of Convenience Stores, National Grocers Association and National Restaurant Association.
Credit unions are not a party in the lawsuit, but the Credit Union National Association is monitoring the outcome. Credit unions and other financial institutions would be impacted by the settlement's terms, which would require a reduced interchange rate fee of 10 basis points for an eight-month period and would apply to all card issuers.
If the total interchange rate fee were reduced by $1.2 billion, those credit unions with card programs would lose about $50 million in total revenues, roughly 0.5 basis points of their total assets, CUNA said. The loss would hit a small number of credit unions with especially active credit card programs.
CUNA said that interchange revenue means credit unions can provide cost-effective, essential credit card services to their members. The temporary reduction in interchange revenue that credit unions would experience will not likely find its way into the pockets of consumers, but more likely will go into those of merchants, said CUNA President/CEO Bill Cheney (News Now Nov. 12).
The card companies' motion for declaratory judgment noted that the settlement would be the largest private antitrust damages recovery in U.S. history and would require the card companies to make "significant changes" to some of their merchant rules.