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NEW YORK -- Visa and MasterCard and other financial institutions have reached a settlement in a swipe fee lawsuit dating back to 2005. However, NACS, the Association for Convenience and Fuel Retailing -- a class plaintiff in the lawsuit -- has rejected the settlement.
The deal totals $7.5 billion, according to Reuters. The settlement, which was filed in Brooklyn federal court on Friday, still needs judge approval.
The proposed settlement involves a payment to a class of stores of $6 billion from Visa, MasterCard and more than a dozen of the country's largest banks who issue the companies' cards. The card companies have also agreed to reduce swipe fees by the equivalent of 10 basis points for eight months for a total consideration to stores valued at about $1.2 billion, according to lawyers for the plaintiffs, according to Reuters.
The deal calls for merchants to be allowed to negotiate collectively over the swipe fees. Merchants would also be required to disclose information about card fees to customers, and credit card surcharges would be subject to a cap, according to the settlement papers. Surcharge rules would not affect the 10 states that currently prohibit that practice, which include California, New York and Texas, the news outlet reported.
An additional $525 million will be paid to stores suing individually, according to the documents.
However, the NACS board of directors, comprised of more than two dozen merchants, unanimously rejected the proposed settlement agreement because it does not introduce competition and transparency into the credit card swipe fee market.
"Not only does the proposed settlement fail to introduce competition and transparency into a clearly broken market, it actually provides Visa and MasterCard with the tools to continue to shield swipe fees from market forces," said NACS Chairman Tom Robinson, president of Santa Clara, Calif.-based Robinson Oil Corp. "This proposed settlement allows the card companies to continue to dictate the prices banks charge and the rules that constrain the market including for emerging payment methods, particularly mobile payments. Consumers and merchants ultimately will pay more as a result of this agreement -- without any relief in sight."
As a class plaintiff in the litigation, NACS sought a trial to establish that the anticompetitive practices engaged in by the credit card industry are illegal. NACS also pushed to end the practices engaged in by the credit card companies that don't allow for market competition, according to the association.
"Even the monetary agreement in this proposal is a mirage," Robinson said. "Merchants won't get these funds for years and will have paid more than that through increased swipe fees long before they see those funds."
The proposed settlement does allow merchants to show consumers some of the costs of accepting credit cards, but only under very limited circumstances with strict oversight by Visa and MasterCard. That oversight makes the settlement unworkable for virtually all merchants.
"Visa and MasterCard will continue to separately price-fix fees for thousands of their bank members. This means that banks won't have to set their own prices and compete like other businesses throughout the U.S. economy. And Visa and MasterCard can continue to police how merchants price their products and stop them from showing consumers the cost consequences of using different credit cards -- unless merchants drop American Express," Robinson said.
According to NACS, the proposed settlement also sets a dangerous path for the future of the payments landscape. Visa and MasterCard will be able to use their power in the market to prevent new entrants, like PayPal, from expanding their share of the market. And the proposed settlement allows Visa and MasterCard to continue to require that merchants accept all of their credit cards no matter how expensive they make those cards, it added.
"NACS does not accept this proposed settlement and we reserve the right to fight it if other class representatives do accept it," said NACS President and CEO Henry Armour.
"There is plenty of time for merchants to make thoughtful decisions related to this proposed settlement. We hope and expect that, as they have the time to review it, many other merchants including class representatives will decide to reject this proposal," Armour explained. "We will keep our members well informed about new developments and their options related to this proposed settlement and we strongly recommend that merchants keep their options open before signing any agreements with third parties to obtain settlement funds -- particularly because this proposed settlement might not ultimately be the basis of a binding settlement."
National Association of Truck Stop Owners (NATSO, which is also a class plaintiff in the legal action, said it will carefully review the proposed settlement before deciding whether to accept it.
"NATSO will carefully review the impact of the settlement and will examine whether it will go far enough in fixing this broken system," said Lisa Mullings, president and CEO of NATSO. "The size of this monetary award will make headlines, but we must carefully evaluate whether the settlement goes far enough to ensure competition and transparency in the credit card industry."