NEW YORK – Visa, Mastercard and banks issuing their credit cards have agreed to pay up to $7.25 billion and allow merchants to encourage customers to use cheaper forms of payment, according to settlement papers filed on Friday in a lawsuit in Brooklyn federal court.
The settlement, if approved by a judge, would resolve dozens of antitrust lawsuits filed by retailers in 2005, accusing the companies of fixing fees for processing credit and debit card payments and prohibiting stores from steering their customers to cheaper forms of payment.
The dispute began in 2005, a year before MasterCard’sinitial public offering and three years before Visa’s IPO. Merchants alleged the cards companies violated antitrust law by fixing the swipe fees, which average about 2% of the purchase price. Proceeds generate more than $40 billion a year for U.S. banks and credit unions.
“Our decision to settle is based on our belief that MasterCard and our stakeholders are best served by an amicable resolution,” said Noah Hanft, MasterCard’s general counsel. “Although we have strong defenses to all claims, a settlement avoids years of litigation and uncertainties that are inherent in such cases. We believe that today’s settlements should resolve all issues with the merchant community.”
"We believe settling this case is in the best interests of all parties," said Joseph Saunders,CEO of Visa.
Under the deal MasterCard will pay $790 million in cash, give the merchants a 10 basis-point reduction in credit interchange rates for eight months and modify its surcharge rule to allow U.S. merchants to levy checkout fees on credit cards. Visa agreed to similar conditions and its share of the total cash liability will be $4.4 billion.
The settlement also calls for modifications to Visa's and MasterCard’s rules to permit retailers to impose a surcharge on credit transactions subject to a cap and a level playing field with other general purpose card competitors. The rule changes on surcharging likely would be implemented in early 2013.
The law firm representing the merchants said in a statement that about 7 million merchants were represented in the settlement. The merchants include grocery chains Kroger and Safeway, Rite Aid, QVC Inc., the National Association of Convenience stores, and a long list of other trade groups and small merchants.
The case is believed to be the largest settlement of a private antitrust case under the Sherman Act.