Retailers seek to deep six interchange settlement

It's looking like the proposed settlement in a class-action lawsuit between Visa, Mastercard and a class of merchants over interchange isn't about to end, despite a proposed settlement. The National Retail Federation asked a federal judge to reject the proposal, characterizing it as a "backroom deal."

"This 'settlement' is a backroom deal struck without the input of major retailers or the trade associations that protect the interests of small Main Street merchants," NRF General Counsel Stephanie Martz said. "It fails to address anticompetitive practices that lead to ever-rising swipe fees that drive up costs for small businesses and prices for American families. It should be seen for the failure that it is."

Martz, in a letter to the judge overseeing the case, alleged the deal was struck without input from major trade associations, like the NRF, on the eve of the case going to trial. U.S. District Court Judge Margo Brodie, the judge overseeing the case recently rejected a request by the card brands to drop the case.

"The merchant trade groups only learned of the proposed settlement when it was publicly announced," Martz wrote in letter to Brodie.

Under the proposed settlement terms Visa and Mastercard would reduce interchange by four basis points for five years. "This temporary reduction is but a drop in the bucket," Martz wrote. After five years, Mastercard and Visa could raise rates again "without restraint," the letter stated. What's more, the settlement only addresses interchange, not the card brand fees, which Mastercard and Visa are free to increase.

Zero opt-out rights

In fact, Mastercard recently announced a planned increase in its acquirer brand volume fee, from 13 basis points to 14 basis points, beginning April 15, 2024.

The NRF, in its letter, said the court should deny the settlement because "its terms are inadequate and unfair; because it does not include opt-out rights," among other things.

Martz and her team said the proposal fails to end Visa and Mastercard practices of "centrally setting 'default'" interchange, "rather than letting banks compete to offer the best rates. It also fails to reverse a controversial 'honor all cards' rule requiring merchants to accept all card from each network regardless of fees," she stated.

While the agreement would provide only temporary relief, it includes a "virtually limitless" ban on future merchant litigation over interchange and has no opt-out provisions for those who do not agree with the terms, Martz added.

The NRF concluded its letter with a call out to Congress, requesting passage of the Credit Card Competition Act, a bill proposed by Senator Richard Durbin, D-Ill., that would require large banks to enable alternative processing networks to Visa and Mastercard, that merchants could use. This, Martz asserted, would lead to competition over fees, security and service.

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