Federal Court Issues OK for Multibillion-Dollar Credit Card Interchange Settlement

Capping years of complex litigation, a federal court on Friday approved a controversial multibillion-dollar settlement of a class-action antitrust case challenging credit card interchange rates.

With his imprimatur, Judge John Gleeson of the U.S. District Court for the Eastern District of New York has brought apparent—but only apparent—finality to a case whose settlement involves payouts to merchants of about $5.7 billion in combined damages and reduced interchange. Defendants in the 8-year-old litigation include Visa Inc., MasterCard Inc., and a handful of major banks.

“This settlement is in the best interest of all involved parties and that has been proven today with the court’s final approval,” said a statement from the Electronic Payments Coalition, a Washington, D.C.-based lobbying group representing the major card networks.

Merchants on Friday were split in their reactions to Gleeson’s ruling.

“I’m ecstatic,” says Mitch Goldstone, president and chief executive of ScanMyPhotos.com, Irvine, Calif., and one of the first plaintiffs in the case. “This is great news for merchants and great news for the networks.”

But the National Retail Federation, which with a number of other retail trade groups has argued strenuously against the settlement, blasted the court’s decision. “We are very disappointed that this deeply flawed settlement has been approved,” said Mallory Duncan, senior vice president and general counsel at the Washington, D.C.-based NRF, in a statement. “[The] decision to approve [the settlement] violates established law and common sense. 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.”

A broad range of retail trade groups, as well as some 7,800 retail companies that have opted out of the settlement since it was reached in July 2012, object primarily to the agreement’s provision that, in return for receiving relief, merchants must forfeit the right to sue the defendants in the future on the same issues. “The settlement permanently ties the hands of thousands of businesses who wanted nothing to do with this misguided case,” the NRF’s Duncan said in the statement.

Some have also argued that the relief itself is insufficient to compensate for years of what they see as overpayments to card-issuing banks for credit card acceptance. The original deal called for defendants to shell out $6.05 billion in damages along with a further $1.2 billion in interchange reductions over an eight-month period, which began July 29. Those amounts have since been reduced because of the opt-outs.

Other terms of the settlement include an agreement by the card networks to relax certain rules, including one that prohibits merchants from surcharging for credit card transactions.

Attorneys involved in the payments business but not in the antitrust case expect merchants to appeal Gleeson’s approval of the settlement. “I think the merchant community is hopeful that on appeal the settlement will be thrown out,” said Anita Boomstein, a partner at Hughes Hubbard & Reed LLP, New York City.

Friday’s approval follows a so-called fairness hearing Gleeson held in September in his courtroom in Brooklyn, N.Y., to let both sides of the case make their arguments for and against the settlement. The case represented a consolidation of a number of class-action suits brought by merchants and merchant groups starting in 2005.