Tuesday , December 7, 2021

A $6.2 Billion Pact May Be Only a Prelude to Difficult Haggling Ahead for Merchants And the Card Networks

Visa Inc. and Mastercard Inc. announced early Tuesday that they and defendant banks have agreed to settle for $6.24 billion merchants’ monetary claims stemming from 13-year-old litigation over credit card interchange.

Today’s announcements represent the second settlement of the sweeping class action known as MDL 1720 pending in U.S. District Court in Brooklyn, N.Y. The original settlement was for $7.25 billion, the value of which was reduced to $5.7 billion after subtracting payments to hundreds of merchants that opted out of the monetary agreement. After the opt-outs and other complaints, a federal appellate court in 2016 threw out the settlement.

The new settlement, legally an amendment to the original one, covers only damages and has yet to be filed formally with the court. The merchant plaintiffs and networks have not settled the other major part of MDL 1720, the merchant challenges to network card-acceptance rules. Negotiations over those rules remain ongoing.

Yet another wild card is the lawsuits brought by large merchants that opted out of the original 2012 settlement. There are several groups of such merchants, and they are covered by the new monetary agreement. But according to its terms, merchants have six months to opt out again. New opt-outs will reduce the value of the settlement by no more than $700 million, according to a Visa regulatory filing.

The new monetary settlement is “a very small number against the interchange paid over a very long period of time,” says attorney Jeffrey I. Shinder, managing partner at Constantine Cannon LLP in New York, who is representing a group of 65 large opt-out merchants.

Still, the networks hailed the monetary agreements as a big step forward.

“This outcome benefits all parties and enables us to focus more of our resources and attention to building the future of digital commerce together,” Visa executive vice president and general counsel Kelly Mahon Tullier said in a statement.

Tim Murphy, Mastercard’s general counsel, said in a separate statement that “we are taking a significant step toward closing a chapter in a longstanding case. 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.”

Some observers believe the talks over network rules, including so-called honor-all-cards rules requiring merchants to accept all cards bearing a Visa or Mastercard logo, could be difficult.

“That will probably last for a while,” consultant Steve Mott, principal of  Stamford, Conn.-based BetterBuyDesign, tells Digital Transactions News. “It’s much more important in terms of what happens to the industry.”

Attorney Shinder says, “There are zero rules changes, and that is not what the large merchants having been fighting for for a long time.” He adds that merchants don’t want “to accede to a tiny monetary settlement and no rules changes whatsoever.”

Both Visa and Mastercard have been paying into special accounts to fund a settlement. Visa says its share is $4.1 billion, which will be satisfied through funds previously deposited with the court as well as $600 million it put into its litigation-escrow account in late June.

Mastercard said that in addition to the original 2012 monetary terms, its share of the new agreement is another $108 million. “In total, the defendants have agreed upon an additional payment of $900 million in the current agreement,” Mastercard said.

—With additional reporting by John Stewart

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