WASHINGTON -- The National Retail Federation announced this morning its Board has authorized the group to go to court to block the proposed $7.2 billion settlement of a federal antitrust lawsuit over Visa and MasterCard credit card fees, adding a major new obstacle to the historic deal.

“The National Retail Federation categorically opposes the proposed settlement. It does nothing to curb the anticompetitive behavior of Visa and MasterCard, and instead ensures that swipe fees paid by retailers and their customers will continue to rise while barring any future legal challenges.” said Matthew Shay, president of the group, which represents retail giants Macy’s, Saks, IBM, L.L. Bean, Brooks Brothers, Crate & Barrel, Neiman Marcus, Dick’s Sporting Goods, Polo Ralph Lauren and hundreds others.

The NRF is weighing what kind of legal options it has because it is not a party to the lawsuit.

The action follows recent expressions of opposition to the antitrust deal by the Retail Industry Leaders Association, National Association of Convenience Stores, National Cooperative Grocers Association, National Grocers Association, National Community Pharmacists Association, the Texas Food & Fuel Association, the Society of Independent Gasoline Marketers of America, as well as retail giants Wa-Mart and Target.

“A key question for the judge is whether this settlement is fair to the nation’s retailers,” NRF’s Shay said. “From what we have heard, it unequivocally is not.”

The deal would settle civil antitrust charges alleging Visa and MasterCard violated provisions of the Sherman Antitrust Act by fixing interchange fees charged to merchants on credit card transactions.

The settlement will have enormous impacts on credit unions, which earn an estimated $3 billion a year in interchange fees on their credit cards and own stock in Visa and MasterCard. Lower interchange fees charged by Visa and MasterCard translate into less revenue for credit unions. In addition, credit unions and banks will fund the huge payment by Visa, which is converting a number of credit union- and bank-owned Class B Visa shares to fund its share of the settlement.

Under the terms of the settlement, Visa, which controls roughly two-thirds of the market, will pay $4.4 billion and MasterCard will pay $790 million. A dozen banks that dominate the two card networks will pay another $1.2 billion into the pot. The $7.2 billion will be spread among 7 million retailers.

Visa and MasterCard will pay merchants what will amount to a $1.2 billion rebate of interchange fees over the next eight months. But just as important, the two cards giants will no longer try to stop merchants from encouraging other forms of payment, such as cash or checks.

The retail group said it is concerned by a number of provisions of the proposed settlement:

The $7.2 billion is too little. If the case went to trial, a verdict in favor of retailers could result in a judgment totaling hundreds of billions of dollars given the eight-year time period of the case and rules allowing for antitrust damages to be tripled.

Nothing is done to block future increases in swipe fees. Without competitive restrictions, the card industry would quickly recoup the cost of the settlement from the very retailers who have been harmed, and increases that have averaged 16% a year over the past decade could continue indefinitely.

Nothing is done to reform the system by which Visa and MasterCard each set fee schedules that all banks issuing their respective cards agree to follow. NRF has testified before Congress that the system is a violation of federal antitrust law.

Nothing is done to require the card industry to disclose the fees on the cards or otherwise create the transparency needed to bring about competition to lower fees.

A highly publicized provision allowing merchants to surcharge customers who pay by credit card is pointless because merchants are seeking to reduce prices for customers, not increase them. It also includes myriad restrictions that would make it difficult to surcharge even if someone wanted to.

Visa and MasterCard have promised to recognize merchant bargaining groups, but no requirement is made for the card companies to negotiate in good faith.

NRF is particularly concerned by a provision barring all merchants – including those that do not yet exist – from ever again suing Visa and MasterCard over swipe fees.

The federal judge in the case has given the parties have until Oct. 19 to formally request approval of the settlement.



Subscribe Now

Authoritative analysis and perspective for every segment of the credit union industry

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.