Merchants Appeal a Key Part of the Credit Card Interchange Settlement

Merchants opposed to the agreement settling a massive, 7-year-old credit card interchange case filed an appeal on Tuesday challenging the court’s preliminary approval of a key part of the pact. The appeal, filed by four merchants and seven merchant trade groups, comes on the same day as the U.S. District Court for the Eastern District of New York’s preliminary approval order was filed, setting Sept. 12, 2013 for a hearing on final approval.

Technically, the merchants’ appeal, which asks the Second U.S. Circuit Court of Appeals to nullify the lower court’s preliminary approval, narrowly challenges a provision of the settlement that releases defendants Visa Inc., MasterCard Inc., and a handful of major banks from liability for interchange pricing policies. But a statement from the group’s attorney lashes out at the controversial agreement in general terms.

“This settlement has fatal legal defects and should not get preliminary approval.  We look forward to presenting the problems we see in this proposal to the Second Circuit Court of Appeals,” said Jeffrey Shinder, managing partner at Constantine Cannon LLC, New York, N.Y.

About 1,200 merchants and trade groups have raised objections to the agreement since it was reached in July. In the deal, the card networks and banks agreed to temporary credit card interchange relief valued at $1.2 billion and $6 billion in damage payments for merchants along with relaxation of certain network rules, including ones that restricted surcharging. The pact received preliminary approval from the Brooklyn, N.Y.-based district court’s Judge John Gleeson on Nov. 9.

Besides the liability release, merchants have objected that the settlement does nothing to reform the networks’ interchange processes and cements in place a number of anticompetitive practices. “The merchant community is deeply committed to reforms that bring transparency and competition to the broken electronic payments market. The volume and diversity of those objecting to this flawed proposal is remarkable and continues to grow,” said Shinder in his statement.

Trish Wexler, a spokeswoman for the Washington, D.C.-based Electronic Payments Coalition, a lobbying group for the payment card networks, called the merchants’ appeal a narrow technicality that won’t delay the settlement’s provisions from taking effect. “Retailers will begin to see many of the benefits of the settlement 60 days from today and the settlement process will move forward as planned,” she said in a statement. “The retailer objectors are focusing on an extremely limited and technical issue.”

The clock starts running today on a 60-day period before rules changes provided for in the agreement take effect, Wexler said.

Visa refused to comment on the matter.

The 11 merchants and merchant groups filing the appeal are: Coborn’s Inc., D’Agostino Supermarkets Inc., Jetro Holdings Inc., Jetro Cash & Carry Enterprises LLC, Affiliated Foods Midwest Cooperative Inc., National Association of Convenience Stores, National Association of Truck Stop Operators, National Community Pharmacists Association, National Cooperative Grocers Association, National Grocers Association, and the National Restaurant Association.