Wal-Mart (NYSE: WMT), Target (NYSE: TGT), and Sears Holdings Corp (NASD: SHLD) rarely find themselves agreeing, much less banding together on any one issue. When it comes to dealings with credit card companies though, that is all changing. The retail giants find themselves in a group of more than 500 merchants objecting to a $7.25 billion antitrust settlement with credit card firms over swipe fees, say the deal is meaningless as long as card companies can fix fees charged retailers on each transaction.
The agreement is being considered by a federal judge in Brooklyn, New York, as merchants face today’s deadline for filing objections to the deal. The settlement, estimated by plaintiffs to be the largest ever in an antitrust case, could receive final approval after a Sept. 12 hearing.
Jai Holtz, vice president of financial services for Sears, said in an objection filed May 25 “Given that Visa and MasterCard can continue to fix interchange, they can recoup the settlement amount quickly by raising interchange rates in the future. The one-time payment could be entirely eviscerated by increased fees or newly-imposed fees just months after it is paid.” Major retailers and trade associations contend that the deal isn’t nearly big enough and unfairly binds all merchants nationwide against suing over the fees in the future.
The tension over credit card fees is nothing new, though recent regulatory changes highlighted by the Durbin Amendment has surely changed the playing field. In November, U.S. District Judge John Gleeson gave tentative approval to the deal, saying there were “issues that are going to require significant scrutiny,” though not enough to derail a preliminary sign-off. He said he would appoint an outside expert to weigh in.
The interchange settlement has two parts: a portion under which merchants receive payments for damages, and another under which credit card companies promise certain rule changes. Merchants could have opted out of the damages portion by notifying the court by May 28. They weren’t eligible to opt out of the rule change portion, which also prohibits all merchants in the country from bringing future lawsuits over the fees.
If the number of retailers dropping out of the deal makes up more than 25 percent of Visa’s and MasterCard’s total credit card volume, the card companies and major banks, including Citigroup (NYSE: C), Bank of America (NYSE: BAC), and JP Morgan Chase & Co (NYSE: JPM) have the option to walk away from the agreement.
