Back in 2005, a number of merchants commenced class actions against Visa and Mastercard, alleging the companies had conspired with US banks to fix credit card processing fees, at around 2 per cent of the purchase price. These “swipe fees”, paid by merchants, are estimated to generate around $40 billion per year for the US banks.
In October this year, the parties agreed to a settlement estimated to be worth $7.25 billion (see report here). Under the terms of the settlement, Visa and Mastercard will pay out $6 billion to be shared among approximately 7 million US merchants. In addition, the merchants will get an eight month reduction in processing fees, which is estimated to be worth around $1.2 billion.
Despite the large headline figure, nearly 1,200 merchants have spoken up in opposition to the settlement (see report here). They claim that $7.25 billion only represents about two months’ worth of fees earned by the credit card issuers. Opponents also argue that the settlement offers temporary relief via compensation, but does nothing to reform the market in the future.
For one thing – although the settlement allows merchants to impose surcharges to pass the processing fees onto consumers, surcharges are illegal in a number of states. Even where surcharges are legal, merchants are loathe to take steps that would discourage consumer spending, particularly in light of difficult economic conditions.
Should the settlement be approved, merchants may instead look to legislative change. Interestingly, swipe fees for debit cards have already been reduced as a result of the Dodd-Frank reforms in 2010. However, the extent to which lower debit card swipe fees have been passed onto consumers remains contentious (see report here).
Although the court looks likely to approve the settlement, it will first hold a hearing in which a number of merchants are expected to raise their objections (see report here).
On 8 November 2012, it was also reported that a number of ATM operators have applied to be excluded from the settlement agreement. The ATM operators are currently pursuing separate antitrust proceedings against Visa and Mastercard and wish to clarify that the settlement with the US merchants will not prevent them from doing so.