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NEW YORK -- Visa USA, facing a trial over its debit card fees, agreed to a settlement with retailers on Wednesday night, two days after a similar deal was reached by MasterCard.
Under the outline of the settlement, Visa will pay $2 billion to retailers and will reduce the fees it charges merchants on some debit card purchases, according to a person close to the retailers' legal team. MasterCard, under its settlement, agreed to pay $1 billion and also agreed to cut its fees, this person said. Both will pay $25 million of the settlements immediately, the New York Times reported.
Visa and MasterCard were scheduled to go to trial this week in a class-action lawsuit brought by Wal-Mart, Sears and other retailers in 1996. They contended that Visa and MasterCard used their dominance in the credit card market to force merchants to accept both credit and debit cards and to exact excessive fees on debit card transactions. Consumers using Visa and MasterCard debit cards typically sign for their purchases, which costs merchants much more than if customers punch a personal identification number into a machine.
Under the settlements, both Visa and MasterCard agreed to give retailers the choice of accepting one or both kinds of cards. Perhaps more important, retailers will pay the companies less in transaction fees, which analysts say will transform competition in the debit card industry.
Under the old rules, debit card transactions through Visa or MasterCard cost vendors much more than what smaller debit networks charged when customers punched in their PIN numbers.