The NRF Bares Its Sword Against the Credit Card Interchange Settlement

The National Retail Federation announced on Tuesday that it is ready go to court to challenge the controversial proposed settlement to a massive group of merchant lawsuits against the bank card networks and some leading banks over card interchange. The NRF’s entry into the fray is the latest indication of substantial merchant dissatisfaction with the tentative agreement announced July 13, seven years after the first lawsuits in the case were filed.

“It’s almost universally recognized now that this settlement is just a disaster for retailers, restaurants, for everybody but the card companies,” NRF senior vice president and general counsel Mallory Duncan tells Digital Transactions News.

The main defendants, Visa Inc. and MasterCard Inc., had yet to issue reactions to the NRF’s stance as of noon Tuesday, though the Electronic Payments Coalition, a Washington, D.C.-based lobbying group of card networks and banks, says politics is behind much of the opposition. A plaintiffs' attorney expressed the same thought and says “there's been a lot of misinformation.”

The Washington-based NRF, whose members operate 3.6 million stores and is the nation’s largest retail trade association, is not a party to the complicated litigation that includes individual and class merchants and trade-group plaintiffs. But getting its opinions in front of the presiding judge, John Gleeson of U.S. District Court in Brooklyn, N.Y., won’t be that hard, according to attorney Anita Boomstein, a partner at Hughes Hubbard & Reed LLP in New York who specializes in payments issues.

“I believe any interested party can object,” Boomstein tells Digital Transactions News. “This is a momentous development because they represent thousands of merchants.”

The NRF said its board of directors authorized the association to go to court to block the proposed settlement. Exactly how and when the NRF will go about doing that, according to Duncan, will depend on how Gleeson indicates he will accept responses to the settlement proposal before him. “The court has to make that clear, the format,” he says. “We will certainly take the most forceful steps available to us.”

Under the proposal, Visa and MasterCard will pay $6.6 billion in damages and temporarily reduce interchange rates to save merchants up to another $1.2 billion. Merchants also will get greater freedom to surcharge card transactions and could form bargaining groups to negotiate interchange with the networks. In return, the networks will be freed from future legal challenges by merchants to interchange and their merchant rules, even from merchants that didn’t participate in the current litigation.

A number of leading retailers and trade groups, including named plaintiffs and others not involved in the litigation, started objecting to the settlement almost as soon as attorneys announced it two months ago. Dissenters say the plan protects the status quo and will not change the way the networks set interchange, and that the networks and banks will quickly recoup their settlement costs. They also say the surcharging proposal, for those merchants that want to risk the ire of customers, is fraught with restrictions.

Wal-Mart Stores Inc. and Target Corp., which were not plaintiffs, and convenience-store trade group NACS, which was, are among others on record against the settlement. On Monday, another plaintiff, the National Association of Truck Stop Operators (NATSO), turned thumbs down.

“We joined this lawsuit in search of real reform to a broken system, one that is shielded from normal competitive forces,” Alexandria, Va.-based NATSO said in a statement. “This proposed settlement does not achieve this goal. It lacks meaningful fixes to a system that allowed Visa and MasterCard to set artificially high swipe fees and provided retailers and consumers with no choice except to pay.”

Duncan says the NRF’s board believes the plan should be scuttled. “What the board has said to us is that the settlement is so bad it needs to be rejected outright,” he says. “There is no way you can tweak this.”

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But the lead attorney for the class merchants, K. Craig Wildfang, a partner with Robins, Kaplan, Miller & Ciresi L.L.P. in Minneapolis, believes politics is behind much of the merchant opposition. Retailers scored a surprising victory with the Durbin Amendment in 2010’s Dodd-Frank Act that regulated debit card interchange and gave merchants more freedom to route debit transactions to the PIN-debit networks of their choosing, and many now hope Congress will address their objections to high credit card acceptance costs.

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“I believe that the merchants who have come out on record as opposing the settlement are not opposing it on substance, because they’re not really offering an alternative,” Wildfang tells Digital Transactions News. “They’re just concerned Congress may see any resolution of the litigation as letting Congress off the hook on future legislative efforts [regarding payment cards].”

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Wildfang also says the motion he plans to file ahead of a hearing for preliminary approval will address what he says has been misinformation about the settlement. One of the biggest incorrect perceptions is that the networks will be free to set interchange with impunity and never have their rules or future conduct challenged, he says.

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“It’s just not true,” says Wildfang, noting that the settlement will not impede consumers, owners of businesses acting in their roles as consumers, state attorneys general, or the U.S. Department of Justice from suing the networks for anticompetitive conduct. “That is easily challenged,” he says. “It is really a red herring.”

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A spokesperson for the EPC echoed the political argument. “The sudden burst of feigned anguish by a handful of retailer trade groups is unsurprising, brought on by political ulterior motives,” she said via e-mail. “These trade-group lobbyists want to be able to go back to Capitol Hill to secure further handouts such as their profitable Durbin Amendment, something they understand would be nearly impossible following a settlement of this matter.”

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Wildfang says he expects to file a motion for preliminary approval by Oct. 12, after which the court would set a 30-day period for filing objections. A hearing then might be scheduled for late this year, with final approval possible in about nine months, he says. Other attorneys have said the approval process could take a year or longer, and Wildfang acknowledges that court proceedings can take longer than expected.