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Retailers await decision on $7.2B 'swipe-fee' settlement

October 13, 2012

U.S. retailers are eagerly awaiting a judge’s ruling on a $7.3 billion settlement proposal arising from a lawsuit over the fixing of credit and debit card fees paid by the retailers.

In what could be the largest antitrust settlement in U.S. history, the agreement would resolve dozens of lawsuits filed by retailers against Visa Inc., MasterCard Inc. and the banks that issue their credit cards.

At issue are the swipe fees—charges to cover processing credit and debit payments—set by the card companies and deducted from the transaction by the banks that issue the cards.

Merchants charge in their suit that Visa and MasterCard colluded through the issuing banks to keep merchants from finding ways to reduce credit-card costs.

Plaintiffs include supermarket chain Kroger Co., pharmacy chain Rite-Aid Corp. and shoe retailer Payless ShoeSource. Trade associations such as the National Association of Convenience Stores and the National Grocers Association also joined the suit.

Under the settlement, agreed upon in July and awaiting a federal judge’s signature, retailers would receive a $6 billion payment from Visa, MasterCard and more than a dozen of the country’s largest banks that issue the credit cards.

The card companies also have agreed to reduce swipe fees by the equivalent of 10 basis points for eight months, for a total value of $1.2 billion.

In addition, the card companies and banks would allow stores to charge customers extra for using certain credit cards in an effort to steer them toward cheaper forms of payment.

But many retailers are unhappy with the settlement and contend the terms don’t go far enough, said Jay Ricker, president of Anderson-based Ricker Oil Co. He is a past chairman of the convenience stores association and has been involved in the fight since retailers filed the first lawsuits in 2005.

The convenience stores oppose the settlement because they say it fails to introduce competition and transparency, and actually provides Visa and MasterCard with the tools to continue to shield swipe fees.

“Pretty much all the players involved who are retailers did not agree to it,” he said. “We hope that sends a message to the judge that the settlement is not in the best interest of retailers and consumers.”

Ricker Oil, a chain of 49 gas stations mostly in central Indiana, operates locally under the BP brand. It paid $5.5 million in fees last year to allow its customers the convenience of swiping their credit cards every time they bought gas, a pack of smokes, or even pop from a store soda fountain.

That led Ricker to introduce its own swipe card that lets customers purchase gasoline at a 10-cent-per-gallon discount off the normal price, which helps Ricker avoid paying the credit and debit card fees to the banks.

“It’s huge,” Ricker said of the amount he pays in swipe fees.

Ricker doesn’t bemoan the concept of the fee but questions why the costs have crept up over the years, to 2.3 percent of every transaction.

On the other side of the argument, Frank Keating, president and CEO of the American Bankers Association, sent a letter to congressional leaders Sept. 20 urging them to ignore calls from the retail sector for government controls on the fees.

“In truth, nothing is ever enough for some in the retail community and their desire to enjoy the benefits of our nation’s truly efficient payments system without ever having to pay for it,” he wrote. “It is time for the Congress to say, enough is enough.”

Indiana’s retail advocacy declined to take a position on the issue because of the divide among retailers favoring the settlement, said Grant Monahan, president of the Indiana Retail Council.

One of the biggest gripes from opponents is that the agreement prevents retailers from pursuing any future court action, he said.

“For those people who are opposed, that’s a serious problem,” Monahan said. “That’s a huge one.”

Theresa Williams, director of Indiana University’s Center for Education and Research in Retailing, doubts the dispute will ever be resolved to every retailer’s satisfaction.

“I think it goes without saying that retailers have always thought that the fees were in excess of what is fair,” she said. “But when you’re dealing with a monopoly, you don’t have a lot of choice.”

Visa and MasterCard together accounted for more than 80 percent of U.S. credit and debit card purchases by volume in 2011, according to the Nilson Report, a California trade publication.•

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