Details under review in swipe-fee antitrust case

Details under review in swipe-fee antitrust case

A long-running legal case that has pitted the National Restaurant Association and other merchants and business groups against Visa, MasterCard and some banks over allegedly anti-competitive swipe-fee rates reached a new stage this month when attorneys for both sides filed a proposed settlement with the court.

The case was initially filed in 2004; the NRA joined as a named plaintiff in 2006.

The settlement has received widespread publicity. However, the National Restaurant Association cautions its members that the July 13 settlement is a proposal only. It has not yet been approved by the court or by the named parties in the litigation, including the NRA.

Caution advised

“Merchants may already be getting calls, letters and e-mails from law firms and other third parties about collecting a pay-out or selling their ‘shares’’of the proposed settlement,” said the NRA’s Scott DeFife, executive vice president, policy and government affairs.

“We urge caution if our members get any solicitations from third parties,” DeFife said. “The settlement is not a done deal. It is premature for any class merchant to consider or sign on to anything, since the parties must first file a joint request and the judge must give preliminary approval to the proposed settlement agreement. This is not expected to occur until late this summer or early fall.”

DeFife said the NRA would keep its members informed on all developments.

Preliminary proposal under review

The NRA and most other plaintiffs continue to review the details of the preliminary settlement, which are extensive. Under the July 13 proposal, the banks and card networks will pay out $7.25 billion to merchants after subtracting certain court-approved expenses. The total includes $6.05 billion for alleged damages to merchants related to claimed anticompetitive fees from Jan. 1, 2004, through the date the court issues preliminary approval of the settlement, and $1.2 billion for merchants who accept Visa and MasterCard for an eight-month period of time after the court gives preliminary approval to the settlement, to immediately help offset their swipe-fee rates.

The proposed settlement also includes numerous other provisions and changes to the card companies’ and banks’ alleged anticompetitive rules and practices. For example, the settlement includes changes to rules that currently restrict merchants from steering customers to less expensive payment methods, that restrict merchant organizations (such as the NRA) from collectively negotiating agreements for members for cheaper rates, and that prevent merchants from adding interchange fees as a sales surcharge.

Next steps

The proposed settlement follows a complicated path forward. First, each plaintiff and defendant has the choice of accepting the settlement; responses are due by mid-August unless the court grants more time. If the parties choose to file a motion asking the court to give preliminary approval to the settlement, and the court gives its approval, notice and information would then be sent to the “class” of affected merchants — an estimated 7 to 8 million businesses that accepted Visa and MasterCard between Jan. 1, 2004, and the court’s preliminary approval date.

Businesses would have about 120 to 180 days after being provided with the notice and a chance to ask questions to opt out of the settlement.

Precise timing is uncertain, but experts say it’s unlikely the settlement would get the court’s preliminary approval until this fall. Final court approval would come only after the merchant notice period and a court “fairness” hearing on any objections merchants may file. The final round of approval would not be expected for about a year, case observers say.

The bulk of the funds — the $6.05 billion allocated to merchants who accepted cards between 2004 and the preliminary approval date — could not be paid until the court gave its final approval to the settlement.

(Source: National Restaurant Association)

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