Visa, MasterCard banks settle with retailers
NEW YORK (MarketWatch) --
"The largest private antitrust settlement in history is probably the appropriate way to characterize it," said attorney Martin Lueck, chairman of the executive board at Robins, Kaplan, Miller & Ciresi LLP, which represented retailers in the long-running dispute. "The big thing the settlement does is it achieves transparency of the costs visited upon merchants by credit-card issuers."
The settlement, which still needs to be approved by a judge, was announced by the parties involved late Friday. It's seen as victory for the nation's retailers because it means stores will be able to charge customers more if they make purchases using a credit card, a practice previously banned by Visa (V) and MasterCard (MA) .
Retailers contended Visa, MasterCard and the banks that issue their cards conspired to fix the fees paid by retailers to accept credit cards. The major banks involved in the litigation include J.P. Morgan Chase & Co. (JPM) ,
In a statement late Friday, Visa put at approximately $4.4 billion its share of the proposed settlement of approximately $6.6 billion to resolve the claims filed by a class of retailers in 2005.
That year, major retailers including
"We are comfortable with the terms, which we don not anticipate will impact our current guidance," Chairman and Chief Executive Officer Joseph Saunders said in the Visa statement.
MasterCard said its share of the cash portion of the settlements will total $790 million on a pre-tax basis. As a result, the company said it would incur an additional $20 million pre-tax charge in its second-quarter 2012 financial statements. MasterCard previously recorded a $770 million charge in its fourth-quarter 2011 financial statements.
While the payment card networks estimated the settlement at more than $6 billion the plaintiffs gave a higher figure of $7.25 billion. The difference involves an estimated $1.2 billion that will be garnered by retailers from terms of the agreement, which involves a 10 basis point reduction in the interchange rate over an eight-month period.
Merchants have for years bemoaned the billions of dollars in fees they are assessed by banks for transactions made by consumers using plastic.
Banks assess fees, which vary but reportedly average about 2% of each purchase. The fees are set by Visa and MasterCard, with the banks and card-processing networks sharing the revenue.
Visa and MasterCard had prohibited stores from charging customers more for using their cards instead of cash. The settlement, papers for which were filed in Brooklyn federal court on Friday, ends that ban, but does not include debit cards.
The settlement "shifts the balance of power to merchants and consumers," said Lueck, who argued that the accord should ultimately increase competition and reduce overall costs, including for consumers.
But the American Bankers Association, a trade group whose members include the bank defendants, said retailers rather than consumers, could ultimately reap the most from the proposed settlement.
"Big-box retailers will likely seize this opportunity to ask Congress for even more handouts," ABA President Frank Keating said in a statement, an apparent reference to the Durbin amendment passed by Congress in 2010 that curbed debit-card transactions fees.
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