As a Key Deadline Nears, Credit Card Interchange Settlement Inspires a Raft of Rhetoric

The rhetoric spewing from partisans on both sides of the massive credit card interchange-litigation settlement is heating up as a major deadline in the 8-year-old case approaches. May 28 is the last day the court overseeing the case will let merchants opt out of their share of monetary damages or file objections to the settlement announced last July.

Meanwhile, merchants themselves are divided between pro- and anti-settlement factions as their lawyers in the case submit a $725 million bill for fees and expenses.

The settlement approved by lawyers for merchant plaintiffs and the defendants—Visa Inc., MasterCard Inc., and some banks—would pay merchants that have accepted Visa and MasterCard-branded cards as far back as 2004 some $6.05 billion in damages and about $1.2 billion in temporary interchange relief, plus give them greater freedom to surcharge credit card transactions. In return, the networks will be freed from future merchant challenges over interchange and their rules.

That seeming stamp of approval to continue the interchange and rules status quo is the main reason a number of merchants, including a majority of the original 19 individual merchant and trade-group plaintiffs, have rejected the plan. More than 1,200 merchants and trade groups had voiced opposition as of last November.

But more protests have been pouring into the U.S. District Court in Brooklyn, N.Y., where Judge John Gleeson is overseeing the case, in recent days and weeks. Objectors now include merchants as small as Blue Moon Pizza in the Atlanta area up to Wal-Mart Stores Inc., Starbucks Corp., 7-Eleven Inc., and department-store chain Belk Inc., according to court filings and press reports. Even some municipalities, including Oakland, Calif., and Little Rock, Ark., have filed objections.

When asked by Digital Transactions News about the total number of objections and formal opt-outs, a representative of the private company contracted by the federal court to handle settlement-related merchant inquiries and filings, Epiq Systems Inc., said the firm is tracking the number of opt-outs but will disclose them only to the court after the May 28 deadline. The court itself is tracking the number of objections, the representative said.

The National Retail Federation, which has criticized the agreement since last summer, not unexpectedly declared Tuesday that it would formally oppose the settlement.

“The proposed settlement does nothing to bring swipe fees under control and would give Visa and MasterCard a legal blessing to continue their abuse of merchants and consumers indefinitely,” NRF senior vice president and general counsel Mallory Duncan said in a statement. “No settlement at all would be better than this one-sided ‘agreement’ written by the card companies for the card companies that would tie retailers’ hands for decades to come.”

Under the class-action terms of the pending settlement, merchants that do not opt out by May 28 will be assumed to have accepted the proposal and will give up the right to file future lawsuits over fees and network rules, according to the NRF.

A pro-settlement plaintiff, Mitch Goldstone, chief executive of ScanMyPhotos.com in Irvine, Calif., derided the anti-settlement faction’s protests, saying they mainly reflect the views of some trade associations and large retailers.

“This is the biggest non-event I’ve ever seen,” says Goldstone, who asserts that most small businesses are aware of and approve the settlement. “I believe that 99% are going to … not [object]. Wal-Mart has better odds of winning the PowerBall lottery than derailing this settlement.”

For a merchant accepting Visa and MasterCard since 2004, the damage payments will amount to about one-third of what that merchant paid in interchange last year, according to Goldstone. Thus, he estimates a merchant that paid $100,000 in interchange in 2012 would get $33,000 back.

Gleeson in November approved the settlement on a preliminary basis, but said final approval will invoke a higher standard. He’s scheduled a so-called fairness hearing for Sept. 12 before making a final determination.

Class lawyers in the case have filed documents seeking court approval for their fees and expenses. The bill is a whopper—$725 million in fees, or 10% of the $7.25 billion damages and interchange-relief pot, plus $27 million in expenses. In its long history, the case has generated more than 50 million pages of documents and lawyers have deposed more than 400 witnesses.