Jessica M. Karmasek Dec. 16, 2013, 7:30pm

BROOKLYN, N.Y. (Legal Newsline) -- A New York federal judge has approved a class-action settlement worth $7.25 billion between merchants and credit card issuers Visa and MasterCard over credit card transaction, or interchange, fees.

Judge John Gleeson for the U.S. District Court for the Eastern District of New York issued his final decision approving the settlement between Visa and MasterCard and more than a dozen merchants and trade groups, including popular retailers Target and Home Depot, Friday.

In the case, which the judge noted has been "extensively litigated" for more than eight years, merchants alleged that defendants Visa and MasterCard, as well as issuing and acquiring banks, conspired to fix interchange, or swipe, fees in violation of the Sherman Act. The federal law prohibits certain business activities that federal government regulators deem "anticompetitive."

The settlement, reached in 2012, provides for:

- The creation of two cash funds totaling up to an estimated $7.25 billion (before
reductions for opt-outs);

- Visa and MasterCard rule modifications to permit merchants to surcharge on Visa- or MasterCard-branded credit card transactions at both the brand and product levels;

- An obligation on the part of Visa and MasterCard to negotiate interchange fees in good faith with merchant buying groups;

- Authorization for merchants that operate multiple businesses under different "trade
names" or "banners" to accept Visa and/or MasterCard at fewer than all of its businesses; and

- The locking-in of the reforms in the Durbin Amendment and a U.S. Department of Justice consent decree with Visa and MasterCard, even if those reforms are repealed or otherwise undone.

The Durbin Amendment, passed as part of the Dodd-Frank financial reform legislation in 2010, required the Federal Reserve to limit fees charged to retailers for debit card processing.

Gleeson said the settlement secures both a "significant damage award" and "meaningful injunctive relief" for a class of merchants that would face a "substantial likelihood" of securing no relief at all if the case was to proceed.

"Specifically, although the settlement either obtains or locks in place an array of rules changes, at its heart is an important step forward: a rules change that will permit merchants to surcharge credit cards at both the brand level (i.e., Visa or MasterCard) and at the product level (i.e., different kinds of cards, such as consumer cards, commercial cards, premium cards, etc.), subject to acceptance cost and limits imposed by other networks' cards," the judge explained in his 50-page opinion.

"For the first time, merchants will be empowered to expose hidden bank fees to their customers, educate them about those fees, and use that information to influence their customers' choices of payment methods.

"In short, the settlement gives merchants an opportunity at the point of sale to stimulate the sort of network price competition that can exert the downward pressure on interchange fees they seek."

The National Retail Federation disagreed with the judge's opinion.

Senior Vice President and General Counsel Mallory Duncan, in a statement late Friday, said the group is "very disappointed" that the "deeply flawed settlement" has been approved.

"It is not supported by the retail industry and would do nothing to reduce swipe fees or keep them from rising in the future," she said. "The settlement permanently ties the hands of thousands of businesses who wanted nothing to do with this misguided case, and a decision to approve it violates established law and common sense."

She added, "We are reviewing the ruling and will take whatever steps are necessary to protect the rights of merchants and safeguard the pocketbooks of their customers."

NRF, the world's largest retail trade association, argued against approval of the settlement at a hearing in September.

Swipe fees cost merchants and their customers an estimated $30 billion a year and have tripled over the past decade, the group contends.

Gleeson has set a status conference regarding the next steps in the case for Jan. 10. He said a fees order will be forthcoming.

From Legal Newsline: Reach Jessica Karmasek by email at

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