Visa, MasterCard $5.7 Billion Pact Tossed As Merchants Win
A federal appeals court rejected a $5.7 billion settlement of claims that Visa Inc. and MasterCard Inc. improperly fixed credit-card swipe fees, potentially renewing years of litigation with millions of U.S. merchants.
The ruling is a blow to credit-card firms that sought to put an end to bitter court battles over fees amounting to tens of billions of dollars annually. The lawsuit, brought on behalf of 12 million merchants nationwide, was filed a decade ago after earlier disputes over the fees. The rejection of the deal raises the prospect that it will have to be renegotiated or the case may go to trial.
Dozens of big retailers who opposed the accord cheered the decision, in which the appeals court said provisions barring merchants from suing over fees were unfair. The U.S. Court of Appeals in Manhattan also said that lawyers who represented retailers nationwide didn't do enough to protect their interests.
"This is not a settlement; it is a confiscation," U.S. Circuit Judge Pierre Leval said in one of two opinions in the case. The judge said he was particularly troubled by the broad litigation release that "binds in perpetuity, without opportunity to reject the settlement, all merchants who in the future will accept Visa and MasterCard, including those not yet in existence."
Visa declined 2.3 percent to $74.94 at 11:58 a.m. in New York, while MasterCard slipped 2 percent to $90.29. The world's largest payment networks were the worst performers in the 68-company S&P 500 Information Technology Index.
"We are disappointed by today's ruling," Seth Eisen, a spokesman for MasterCard, said in an emailed statement. "We believe we presented a clear case to the court that the settlement was fair and appropriate based on more than four years of negotiation and the close involvement of the district court. We are reviewing the decision to determine our next steps."
Connie Kim, a spokeswoman for Visa, declined to comment.
Large retailers including Wal-Mart Stores, Amazon.com and Target, as well as major airlines, health insurers and other consumer businesses, had criticized the deal. On Thursday, the Retail Industry Leaders Association, a trade group that represents more than 200 merchants, praised the ruling, saying the settlement would have denied retailers the ability to bring lawsuits over interchange rules and rate setting. The group had formally opted out and objected to the deal two years ago.
"Today's decision is a victory for all merchants and consumers," Deborah White, the group's executive vice president, said in a statement. "The settlement orchestrated by the card networks and banks would have undermined merchants' legal rights forever and would have allowed Visa and MasterCard to impose higher and higher swipe fees."
U.S. District Judge John Gleeson in Brooklyn, New York, approved the accord on Dec. 13, 2013, saying he was satisfied with the settlement, which was estimated to be the largest-ever U.S. antitrust deal. Gleeson stepped down from the bench earlier this year.
Once owned by groups of major banks, Visa and MasterCard had defended themselves for decades against legal claims that they operated price-fixing schemes. Swipe, or interchange, fees are set by card companies and paid by merchants when consumers use credit or debit cards.
The settlement was announced in July 2012. Once worth as much as $7.25 billion, it was valued at about $5.7 billion as of August 2013 after reductions for about 8,000 merchants that dropped out of the damages portion of the lawsuit.