09/20/2018

$6.2 Billion Settlement Reached on Credit Card Swipe Fees

This represents the largest-ever class action settlement to date

Visa, Mastercard and several other U.S. banks (Citigroup, Bank of America and JPMorgan Chase) agreed to pay $6.2 billion to end a long-running case brought by merchants over card swipe fees – the largest-ever class action settlement to date. The suit was brought by merchants over card “swipe fees” –  also known as interchange fees, which refers to the hidden cost paid by merchants to card-issuing banks and credit card companies for processing credit card and debit card transactions. The case focused around merchants arguing that the banks and networks worked to inflate those fees as well as prohibit merchants from steering customers toward payment alternatives.

The settlement has been highly anticipated for weeks and previous reports attempted to guess the actual dollar amount and some possible limits to the structural changes in agreements between the card giants and merchants. This is all coming on the heels of a previous settlement in June that involved the Supreme Court ruling in favor of American Express’ business model and anti-steering provisions.

According to Reuters, the announced settlement – which still needs court approval – had previously been worth as much as $7.3 billion. The larger, previous settlement was struck down by an appeals court a couple of years ago. Then, in 2017, the Supreme Court refused to hear it and the case ended up back in district court.

Settlement Was More Than a Decade in the Making
The case goes back as far as 2005 and had been started by as many as 12 million merchants. When finalized, the $6.2 billion settlement would put to rest a case that has spanned more than a decade.

Initially the settlement had been $5.7 billion as a result of 8,000 merchants opting-out of the agreement. Among those merchants, like Lowe’s and Starbucks, retained the ability to file additional suits over the same swipe fee structure. There is also a portion of the suit that seeks to revise network rules not covered by the recent settlement, and it is being reported that the agreement will not have an immediate action tied to the portion of the suit amid ongoing negotiations. 

Mixed Reviews on the Settlement and the State of Swipe Fees
Mastercard and Visa have both stated that it was an important step to finally reach an agreement with merchants in this matter.

Tim Murphy, general counsel for Mastercard said, “We can put this behind us and focus on continuing to innovate with our merchant partners to deliver the experience and convenience that consumers expect.”

Kelly Mahon Tullier, Visa’s general counsel, added, “After years of thoughtful negotiation, we are pleased to be able to reach this agreement and move forward in our partnership with merchants to provide consumers convenient, reliable, secure ways to pay.”

Others challenge the card networks take on the state of swipe fees.  Stephanie Martz, general counsel for the National Retail Federation trade group, said in a statement, “The monetary settlement doesn’t solve the problem. Ending the practices that lead to these anti-competitive fees is the only way to give merchants and consumers full relief once and for all.”

This article was provided to OSAE by Infintech, the exclusive provider of credit card processing services to both OSAE and the OSAE Foundation.