The largest antitrust settlement in U.S. history involving credit card companies and banks is now under attack. Many of the country’s biggest retailers, who were not parties to the case, are trying to derail the $7.25 billion settlement. Mark Williams, president of financial services at Best Buy, said the settlement “does almost nothing to address why U.S. consumers and merchants continue to pay higher (credit card) costs than nearly every other developed country.” Target Corp. says the settlement has “serious substantive and legal defects” that “perpetuate a broken system” of uncontrolled credit card fees that costs Target hundreds of millions of dollars each year.
Many experts believe that major retailers and trade associations will fight all the way to the U.S. Supreme Court if necessary to kill or materially change the settlement. Opponents say it leaves credit card companies with too few limits on fee increases and prohibits future lawsuits. Georgetown University law professor Adam Levitin, a consumer finance expert, speculated that credit card fees could become a flash point in the U.S. House and Senate, the way debit card fees did in 2011 when Congress voted to restrict them in an amendment to financial regulatory reform. Levitin thinks judicial approval of the current settlement would up the legislative pressure to pass a better long-term solution.
In November, a majority of the merchants and trade associations that brought the lawsuit against Visa, Master-Card and several banks seven years ago announced plans for a new legal strategy. Simply put, they will ask a federal appeals court to throw out the settlement. Preliminary approval of the settlement was granted by U.S. District Judge John Gleeson on November 9th.
In 1993, credit cards paid for $650 billion in goods and services in roughly 6 billion transactions, according to the U.S. Government Accountability Office (GAO). By 2007, it was said that credit card payments had risen to more than $1.9 trillion on 27 billion transactions. One to 3 percent of the value of each transaction went to credit card fees, the GAO said. Visa and MasterCard accounted for 71 percent of credit card purchasers in 2008, the GAO reported. From 1991 to 2009, MasterCard raised its standard credit card fees by 22 percent, according to the GAO, and from 1995 to 2009, Visa raised its standard fee by 23 percent.
With tens of billions of dollars in credit card fees paid each year, Professor Levitin says the terms of the antitrust settlement are crucial. His analysis of the settlement concluded that it was “a bad deal for merchant plaintiffs and the public at large.” He contends that ordinary consumers should worry because the settlement “allows MasterCard, Visa and big banks to impose a hidden tax on everything.” But not everyone feels that way. Visa and MasterCard have both expressed satisfaction with the settlement even though it would force them to pay billions in damages and temporarily lower their fees.
When the settlement came to light in July, Visa Chairman and CEO Joseph Saunders said he did not expect the penalties to affect earnings estimates issued to Wall Street. Also, a Minnesota business that originally sued — CHS Inc., a giant agricultural cooperative based in Inver Grove Heights — “supports the settlement agreement and believes that it is a fair and equitable resolution of the case,” according to corporate communications director Lani Jordan.
It appears that the retail industry’s pushback against the settlement will continue. In 1993, credit cards paid for $650 billion in goods and services in roughly 6 billion transactions, according to the U.S. Government Accountability Office, or GAO. By 2007, credit card payments mushroomed to more than $1.9 trillion on 27 billion transactions. One to 3 percent of the value of each transaction went to credit card fees, the GAO said.
Craig Wildfang, who is with the Minnesota firm of Robbins, Kaplan, Miller & Ciresi, was the lead attorney for the plaintiffs in this long-running case. He says this is the best antitrust settlement ever and that the settlement should receive final approval. The litigation has been going on for years and it’s time for finality. It will be most interesting to see how the matter winds up.
Source: Minneapolis Star
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