Visa Follows MasterCard in Prepaying Its ‘Wal-Mart’ Obligations

As an attorney for the merchant plaintiffs predicted earlier this summer, Visa Inc. disclosed Monday that it plans to prepay the remaining $800 million of its settlement obligations with merchants under the so-called Wal-Mart debit card class action for a discounted $682 million. If the plan gets court approval, the prepayments from Visa and MasterCard Inc. for a combined $1.02 billion would end one of the most litigious chapters in the bank card networks' history book. But future pages almost certainly will contain accounts of more courtroom and political battles over merchants' costs for accepting payment cards. In a regulatory filing, Visa said it would make the payment on Sept. 30 or the day after the U.S. District Court in Brooklyn, N.Y., approves the plan, whichever is later. Under the current schedule, Visa has four more annual payments of $200 million to go, with the final one scheduled for Dec. 22, 2012. Visa's filing indicates that the proposal has the approval of the merchants' attorneys. New York attorney Lloyd Constantine of Constantine Cannon LLP, co-lead counsel for the merchant plaintiffs, was unavailable for comment late Monday. But when MasterCard said it would prepay its remaining $400 million settlement obligation for a discounted $335 million, Constantine said he wouldn't be surprised if Visa followed suit (Digital Transactions News, July 2). In a brief statement to Digital Transactions News, Visa said it was “pleased to have reached an agreement” to prepay its settlement obligations at a discount. “We believe this agreement is in the best interest of the company and its shareholders,” the statement says. The settlements arose out of a class-action lawsuit retailers initiated back in 1996. Upset about the cost of accepting rapidly proliferating debit cards, the 8 million class members challenged Visa and MasterCard's so-called honor-all-cards rules, which required merchants that accepted the networks' credit cards to also accept their debit cards. The lawsuit became known as the “Wal-Mart case” because of the participation of Wal-Mart Stores Inc., the nation's largest retailer, though Visa and MasterCard call it the “Visa Check/MasterMoney” case in reference to the product names of their signature-based debit cards at the time. The networks settled in 2003 for just over $3 billion as the case headed to trial, MasterCard for $1 billion and Visa for $2 billion. Visa and MasterCard also agreed to drop their honor-all-cards rules and temporarily lowered signature-debit interchange. Consultant Eric Grover of Menlo Park, Calif.-based Intrepid Ventures says the prepayment lets Visa “close the door completely” on the Wal-Mart case. “There are bigger problems going forward,” says Grover, a former Visa International executive. Some of those could include yet another pending class action challenging credit card interchange as well as several bills in Congress that would regulate interchange and other aspects of merchants' acceptance costs. “I don't think it [the prepayment] will have any effect on the outstanding litigation, and I don't think it will have an effect on the political debate,” Grover says. But as Constantine noted when MasterCard announced its prepayment plans, Grover also believes that merchants hurt by the recession will appreciate one big payment soon, even if it is at a discount to the total they would get if they waited through 2012. “It's a painful economic environment for retailers, and I suspect they would rather have a payout today than a stream of payments to come,” he says.