First Data: Planned Settlement Would Let the Card Networks ‘Buy a License to Monopolize’

With a hearing coming up on Friday, objections to the proposed credit card interchange settlement are piling up in Brooklyn, N.Y., faster than debris from Superstorm Sandy. In addition to a number of retailers and their trade groups, those on record against the controversial plan forged by lawyers for the merchant plaintiffs and defendants Visa Inc., MasterCard Inc. and some banks now include such seemingly unlikely entities as First Data Corp., the nation’s largest merchant processor, and two ATM industry trade groups.

First Data is not a plaintiff in the massive litigation, but said in a Nov. 4 court filing that “it was thrust into this case by virtue of an overly broad class definition, a…settlement that does not afford it opt-out rights, and a release that could forever bar it from questioning hundreds upon hundreds of [network] rules and regulations that affect more than half of its multibillion dollar a year business.”

While First Data and its affiliates service 6.2 million merchant locations worldwide, the company also functions as a minor card-accepting merchant by virtue of taking credit cards in its cafeterias, in mailrooms for employee shipments, and at its charitable foundation for accepting donations. Those functions are enough under the definition of a merchant in the proposed settlement for the company to be bound by its terms affecting class plaintiffs, according to First Data.

“Because the class definition is so broad, companies like FDC are roped into a

settlement that provides them nothing and forces them to release claims [against the networks] that they may have without affording them due process,” the filing says. “Requiring entities like FDC to release defendants when they get nothing in return violates fundamental notions of fairness and constitutional due process.”

First Data, which describes itself as a competitor of the card networks, also recounted seven lawsuits going back to the 1980s that challenged them over interchange and rules. The processor argued that Visa and MasterCard shouldn’t be given the blanket protection against future antitrust challenges called for by the settlement agreement.

“The sheer number of these disputes helps to highlight the complex nature of the industry which has been involved in numerous antitrust actions in the past,” the filing says. “Visa and MasterCard should not be able to ‘buy a license to monopolize’ at a ‘fire sale’ price by paying a one-time settlement to prevent all future lawsuits and why the court must take care not to approve a settlement that would serve to decrease competition in the industry. The ability of those stakeholders to enforce the antitrust laws is critical to the health and vitality of competition in the industry.”

Spokespersons for Visa and MasterCard could not be reached for comment, but the networks’ top executives have expressed support for the settlement.

Judge John Gleeson of U.S. District Court in Brooklyn is taking comments on the proposed settlement that would pay class merchants $6.05 billion and give them some relief from certain network rules, including surcharge restrictions. Visa and MasterCard also are to provide $1.2 billion in temporarily lowered interchange rates. In return, the merchants are to agree not to sue Visa and MasterCard in the future over interchange and network rules.

Gleeson’s first major step will be to grant or deny preliminary approval after hearing oral arguments Nov. 9. He’s already indicated that after a quick review the plan appears to meet the threshold for preliminary approval. Even if the proposal clears that initial hurdle, final approval would not be guaranteed and would not come until after a lengthy vetting process.

In addition to First Data, two retail ATM trade groups in the past few days asked Gleeson to withhold preliminary approval of the settlement until its language is revised to exclude ATM deployers. The National ATM Council (NAC), which represents a number of ATM independent sales organizations, warned Monday that an “erroneous and overly broad interpretation” of the settlement could affect separate litigation NAC and others filed against Visa and MasterCard in U.S. District Court in Washington, D.C., as well as future lawsuits by independent ATM deployers against the networks.

A second group, the ATM Industry Association, on Friday said it filed a friend of the court brief contending, “the language of the agreement is so broad and vague that it might be construed to include ATM deployers, even though the original claims were made by merchants engaged in the sale of goods or services.” ATMIA says deployers won’t receive any benefits from the settlement because an ATM transaction is not a purchase.

In related news, 10 individual merchant plaintiffs, including Kroger, Supervalu, Rite-Aid, and Meijer, filed a motion Monday to dismiss their claims against Visa and MasterCard because they had settled with the networks. The settlement announced July 13 included about $550 million for individual plaintiffs.