A group of 19 of the largest retailers in the U.S. said this week that they each individually decided to object to and opt out of a proposed class action settlement of an antitrust lawsuit challenging fees—called interchange or swipe fees—that Visa and MasterCard fix for banks to charge merchants for the use of Visa and MasterCard credit and debit cards.
The merchants participating in the announcement include Walmart, Costco, Lowe’s, Alon Brands Inc., Gap Inc., Starbucks Corp., J.Crew Group Inc., Crate & Barrel and 7-Eleven Inc. A complete list of the merchants participating appears below.
These merchants will now consider the possibility of additional legal action to recover damages from Visa and MasterCard under U.S. antitrust laws. It is estimated that, even if the proposed settlement is finally approved by the court, such new litigation could result in billions of dollars in additional damages, covering all Visa and MasterCard transactions processed by those merchants from Jan. 1, 2004-Nov. 27, 2012.
Kyle McKeen, president and CEO of Alon Brands, said, “What is clearly striking about the opposition to this settlement is the diversity of merchants that have come out against the deal. They are from every corner of the country, from different merchant verticals, and are different sizes. But they share a common view: that this deal is not a good one for the industry.”
McKeen added: “In our market segment of convenience stores and petroleum sales, 76 percent of the stores are owned and operated by single-store operators that don’t stand a chance arguing against restrictive rules and regulations that the big credit card companies impose on them. Allowing this settlement to move forward would validate and continue the oppressive environment that small businesses have to face with the big card companies.”
Mike Cook, SVP of finance and assistant treasurer for Walmart, said: “If this settlement is approved, it would allow credit card companies and big banks to perpetuate an unfair and broken system that costs all consumers, including those who don’t even have a credit or debit card.
“Credit card networks could continually increase hidden swipe fees, which already cost consumers tens of billions of dollars each year,” Cook said. “Additionally, we object that the proposed settlement would require merchants to release future claims against the credit card networks covering rules we’ve never seen and conduct that has yet to occur that would affect people who aren’t even born.”
The interchange litigation filed in federal district court in Brooklyn in 2005 alleges, among other things, that Visa, MasterCard and their member banks have unlawfully fixed the interchange rates merchants pay for Visa and MasterCard credit and debit transactions, which has forced merchants to pay exorbitant fees well above competitive levels and the levels of similar fees around the world. These fees raise prices for consumers on goods and services in every part of the American economy, a news release says.
The merchants that are objecting to and opting out of the proposed settlement contend the settlement maintains and strengthens an anticompetitive system that allows Visa and MasterCard to fix interchange fees for banks. In their view, the settlement fails to provide any meaningful structural reform, while providing the defendants with an overbroad release that will cover every merchant that accepts Visa and MasterCard credit and debit cards, forever.
These merchants also believe that the settlement violates their rights to due process under the U.S. Constitution by depriving them of the right to sue for ongoing and future damages. While merchants can opt out of the damages portion of the Brooklyn settlement and sue for damages for past anticompetitive practices, if the court approves the settlement the merchants would be bound by the settlement’s unprecedented release of Visa,
MasterCard and the banks from liability for virtually any similar anticompetitive acts they take in the future relating to Visa’s and MasterCard’s current rules.
Merchants opting out believe that there has never been so broad a release from liability in any class action in U.S. history. They claim the release is a blatant violation of their due process rights and an unconstitutional taking of their legal rights to sue for current and future antitrust violations.
The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-01720, U.S. District Court, Eastern District of New York.
The complete list of merchants participating the announcement:
J.Crew Group Inc.
Crate & Barrel
Alon Brands Inc.
Roundy’s Supermarkets Inc.
Recreational Equipment Inc. (REI)