The $6.2 billion settlement requires court approval but, even if it is cleared, a related dispute over what rules the card networks can impose on merchants will remain unresolved – according to the FT.
Under the deal, the two payment groups and banks including JPMorgan Chase, Bank of America and Citigroup, agree to pay $900 million to the merchants on top of the $5.3 billion agreed under a revised 2012 settlement. Visa’s share of the extra payout will be $600 million, while Mastercard is liable for another $108 million.
Both companies had increased reserves to reflect their expected liabilities under the latest settlement. If the settlement is approved, plaintiffs will be given the option to opt out in light of the ongoing case on card network rules.
“It is highly likely that the large merchants who are involved in litigation with the card networks will opt out of the settlement,” said Jeffrey Shinder, the lead lawyer for the so called “7-11” group of merchant plaintiffs, a group which includes Amazon, Starbucks, Lowe’s, and 7-11.
“This case is fundamentally about structural issues, and not just money.” Of particular concern to many merchants is the “honour all cards rule” imposed on them by both Visa and Mastercard.
It states that a merchant taking any bank issuer’s Visa card, for example, must take all Visa cards. Merchant groups claim that the rule removes the incentive for banks to charge lower transaction fees. In 2012, the card companies reached a $7.25 billion agreement on the litigation, first brought 13 years ago, covering both the monetary and rules elements of the case.
That was contested by some merchants, however, and ultimately rejected by the court, which found that the having the same lawyers representing plaintiffs suing both for monetary damages and “injunctive relief”, or changes to card network rules, represented a conflict of interest.
The decision prompted the revised, monetary offer of $5.3 billion. Regulators in other countries have imposed caps on the fees banks can charge credit hard holders. Under EU rules, the limit is 0.3% for credit cards and in Australia the fees are capped at less than 1%.
In the US, interchange fees for debit cards were capped under the 2010 Dodd-Frank financial reforms but fees average about 2% for credit cards.
Brian Riley, a card industry analyst at Mercator Advisory Group, said there would be significant repercussions if interchange fees came down. “As you saw with debit cards in the US after Dodd-Frank, rewards programmes for cardholders will disappear quickly, and credit will probably tighten.”
In mid-day trading in New York, Visa shares were up 1 per cent and Mastercard’s up 2 per cent, both ahead of the broader market.