Retailers balk at Visa-Mastercard settlement proposal

To the legions of retailers panning the proposal to settle the decades-long battle with Visa and Mastercard you can add Walmart. In a brief filed with U.S. District Court for the Eastern District of New York, the mega-retailer complained that the primary plaintiffs and their lawyers "have yet again sold out their fellow class members." It asked the court to not only reject the proposed settlement, but to decertify the class as well.

"Alternatively, the court should grant the class members the right to opt out of the mandatory class or redefine the class so as to carve out large national retailers," Walmart's lawyers wrote.

Walmart argues that the proposed settlement was no better than the one rejected by the court last year. "In the court's words, that proposed settlement offered 'the least benefit to the merchants with the most valuable claim'," Walmart stated.

Walmart felt locked out of negotiations

Referring to the proposed settlement that was rejected by the court last year, Walmart wrote "Despite the Court's admonition that Class Plaintiffs had to treat large national merchants equitable, Class Counsel's subsequent treatment of Walmart showed they had no intention of doing so."

Walmart said it offered to work with the lawyers "to share its deep expertise about the payments industry" and how a "proper settlement" should look. "But Class Counsel refused to share with Walmart any information about its settlement negotiations…which underscored they did not welcome Walmart's involvement in the settlement process," the retailer added.

These are some additional complaints Walmart put regarding the proposed settlement:

• It offers only "illusory relief from the defendants' Honor All Cards rules (the single most important anticompetitive practice at issue in this litigation);
• surcharging and discounting remedies that conflict with Walmart's business model and are therefore "useless";
• time-limited rate caps that defendants could circumvent (just as they have circumvented rate caps in Europe); and
• persistent disregard for the interests of large national merchants.

Retail groups echo Walmart complaints

Many of these same complaints were put forth in a letter to the court from the National Retail Federation and the Retail Industry Leaders Association. The proposed settlement does little to change the honor-all-cards rule, the trade groups asserted.

For example, a merchant could choose not to accept Visa-branded premium consumer credit cards, which tend to have higher interchange. But it's an all-or-nothing proposition: if a merchant wants to accept any premium card issued by any bank, it has to accept all premium cards issued by all banks in the network, the NRF and RILA stated.

No measurable change in honor-all-cards rule

Besides, the brief noted, just about all cards these days are premium cards. "As a result, should a merchant opt out of premium cards, it would also be opting out of credit cards altogether, which is not viable in today's marketplace."

The filing continues, "And, to further enshrine their anticompetitive behavior, the proposed settlement agreement allows Visa and Mastercard to lower interchange rates for merchants who agree to accept all cards. ... It is all but guaranteed that the HAC rule will, in practical effect, stay exactly the same under the proposed settlement agreement as it operates today."

Foisting the wishes of a few on the many

The NRF and RILA, in its filing with the court, also took issue with the "class" leading the class action lawsuit, which they described as "a collection of five tiny businesses – a hair salon, pharmacy, dentist and like entities."

The NRF and RILA, on the other hand, represent thousands of merchants that account for over $2.7 trillion in annual retail sales.

The groups also pointed out that the proposal would deprive "nearly every merchant in the country," through a mandatory release, to pursue changes to the card brands' "anticompetitive practices." In other words, future lawsuits over interchange and honor all cards rule would be off the table.

"And should the Court approve the proposed settlement agreement as drafted, our members will be bound by its unfavorable terms for years," the two trade groups wrote in urging the court reject the proposed settlement.

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