Visa-Mastercard Settlement with Retailers Overturned: What’s Next?

On June 30, 2016 the Second Circuit overturned the monumental Visa-Mastercard antitrust settlement with retailers. Now, some merchants are wondering: Where are we at now?

A Quick History Lesson on the Settlement

The settlement, which stemmed from a 2005 lawsuit in which retailers accused credit card providers of scheming to fix the price of processing fees, had a few different components.

First was the cash payout. The original settlement – once valued at $7.25 billion – was intended to resolve claims that merchants were overcharged on interchange fees. How much a merchant received depended on how much volume they processed with Visa and Mastercard.

The next component revolved around changes in Visa and Mastercard rules moving forward, which allowed for surcharging. “That was a potentially important rule change, but additionally, there was a clause that allowed merchants to collectively negotiate as a group for lower interchange rates. We are not sure anyone has actually done that, however,” says Pat Moran, CEO of BlackLine Payments Advisors LLC.

That’s where things get tricky. Some states, including New York, ban surcharging. Plus, Amex network rules prevent merchants who accept American Express from taking advantage of the surcharge option.

Problems with the Settlement Unearthed

The original settlement was seemingly valuable for merchants, but one detail was ignored. The appeals court found that since there are two classes of merchants – those that existed before the settlement and those that started after the settlement, they should have been represented separately. Instead, however, they were represented by a single plaintiff attorney, which reduced the effectiveness of the settlement.

What’s Next?

“The appeals court is saying both the plaintiffs and defendants need to go back and renegotiate a new deal that doesn’t create two separate classes of merchants.”

The attorneys from both sides met this month and it looks like both sides are motivated to get a deal done, but we will have to wait to see how it plays out.

Have Any Questions?

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