Credit card fees settlement that offered ‘tiny and temporary’ relief rejected by judge

WASHINGTON – A federal judge this week rejected a proposed settlement of a class-action lawsuit over credit card swipe fees, a move welcomed by the National Retail Federation.

U.S. District Judge Margo Brodie issued an order Tuesday morning saying  “the court finds that it is not likely to grant final approval to the settlement and accordingly denies plaintiff’s motion for preliminary settlement approval.” The order followed remarks Brodi made during a June 13 hearing, saying she was unlikely to approve the settlement and cited concerns after the NRF and other merchant groups said it wouldn’t provide enough relief.

“This settlement was never agreed to by the retail industry as a whole and would have done nothing to end anticompetitive practices and fix our nation’s broken payments market,” NRF Chief Administrative Officer and General Counsel Stephanie Martz said. “The proposed reduction in swipe fees was tiny and temporary and ignored the underlying issue of how these fees are centrally set rather than allowing banks to compete to offer the best rates.

“We’re glad the judge has seen this backroom deal for what it is so we can move forward to real relief from these ever-increasing fees that drive up costs for small businesses and prices for American families.”

Attorneys for the NRF wrote a letter to Brodie in April saying the proposed settlement would have failed to end Visa and Mastercard’s practice of centrally setting swipe fees charged by all banks that issue their cards. The proposed settlement also failed to reverse a controversial “honor all cards” rule requiring merchants to accept all cards from each network regardless of fees.

The proposed settlement of the 19-year-old lawsuit was announced back in March and would have reduced rates for each swipe fee category by four basis points for three years and average rates by seven basis points for five years. However, swipe fees currently average 2.26 percent of the total transaction – 226 basis points – and the NRF argued the proposed reduction was merely “a drop in the bucket.”

Though the proposed rate reduction would have saved merchants and average of $6 billion a year, swipe fees for Visa and Mastercard totaled $100 billion last year alone. The agreement also would have applied only to “interchange” fees that go to card-issuing banks, leaving Visa and Mastercard free to raise “network” fees that could potentially offset any savings.

Other parts of the settlement were “impracticable or meaningless,” the letter said, noting a provision that would allow merchants to impose a surcharge on customers who use premium cards that carry higher-than average swipe fees. While the agreement would have provided only temporary relief, it included a “virtually limitless” ban on future merchant litigation over swipe fees and had no opt-out provision for merchants who did not agree with its terms.

The NRF has maintained that Congress should pass the Credit Card Competition Act, a bipartisan bill that would require large banks to enable an alternative processing network on Visa and Mastercard credit cards, leading to competition over fees, security and service.

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