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WASHINGTON, D.C. -- U.S. Sen. Dick Durbin , author of federal debit-card swipe fee reform that became law last year, has warned merchants they should "think hard" before signing a $6.6 billion settlement with Visa, MasterCard and banks over credit-card transaction fees, according to a Bloomberg news report.
"This is a stunning giveaway to Visa and MasterCard," said Durbin, who joins a growing list of retailers and merchant trade associations in opposing the deal. "This is a bad deal, but it is not a done deal. The merchant plaintiffs still have to decide if they will support it."
Visa and MasterCard, the world's biggest payment networks, and some of the largest banks agreed to the settlement last month after a seven-year legal battle. The accord, which requires a judge's consent, also includes a temporary reduction in so-called credit-card swipe fees, or interchange fees, and allows retailers to impose surcharges on such transactions. The fees average about 2 percent of the purchase price and generate more than $40 billion a year for U.S. banks.
Since the proposed deal was announced on July 13, trade associations, including NACS, the Association for Convenience & Fuel Retailing, the Society of Independent Gasoline Marketers of America (SIGMA), and the National Grocers Association (NGA), have said they will reject the settlement. In addition, several major retailers, including big box stores Walmart and Target, as well as convenience retailers Ricker Oil and Thorntons, have weighed in against the settlement.
"It gives Visa and MasterCard free rein to carry on their anti-competitive swipe-fee system with no real constraints and no legal accountability," said Durbin, the senator from Illinois. "This is not a settlement I would agree to. I hope that the remaining merchant plaintiffs will review the proposed settlement carefully and think hard about whether it will be good for the future of our credit- and debit-card systems."
Bloomberg noted the settlement may be nullified if enough merchants refuse to join. Visa, MasterCard and the banks can terminate the accord if the retailers who opt out account for more than 25 percent of the U.S. credit-card spending processed by the two networks from Jan. 1, 2004, through the month the accord is approved by the court, according to a memorandum of understanding.
Durbin spearheaded the inclusion of debit-card limits in the 2010 Dodd-Frank Act, and the Federal Reserve last year capped those fees at about half the average that retailers had paid previously, supposedly costing banks about $8 billion in annual revenue. However, convenience store retailers have already complained that they are paying as much or more in debit card fees as they were before the amendment passed due to various reasons, including increased charges on small debit transactions that went into effect with the new rules.
U.S. Rep. Barney Frank, the Massachusetts Democrat who co-authored the legislation but fought to exclude the debit fee reform, said he supported the recent settlement.
"A free-market approach in this area will be better for the economy and all concerned parties," he said in a statement on July 19, according to Bloomberg.
Since passage of the Dodd-Frank Act, Republicans have taken control of the House, making further interchange reform problematic for retailers. However, Durbin is expected to introduce new credit interchange legislation next year nonetheless. NGA CEO Peter Larkin has already said his group plans to push for more legislation.
In addition, some of the class plaintiffs who opt out of the settlement, such as NACS, could initiate new lawsuits against the credit card companies.