Visa / Mastercard Settlement Screws Merchants / Businesses. Opt-Out!!!!
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Wal-Mart Stores Inc. has sued Visa Inc. for more than $5 billion, claiming the card network charged unreasonably high fees when the retailer's customers paid with plastic.
Retailers are charged fees set by Visa and other card networks every time a customer pays with a credit or debit card. In its suit, Wal-Mart alleges that the way Visa set those "swipe fees" violated antitrust regulations and generated more than $350 billion for card issuers over nine years, in part at the expense of the retailer and its customers.
Visa declined to comment. The company has repeatedly denied that its fees are anticompetitive.
The lawsuit, filed this week in the U.S. District Court for the Western District of Arkansas, extends a long-running battle between the retailer and the payments network. Wal-Mart helped win a $3 billion class-action settlement with Visa and MasterCard Inc. in 2003 over the card networks' requirement that merchants who accepted their credit cards must also accept their debit cards.
Interchange fees, the industry term for card-swipe fees, have been another major point of contention between the two camps. The fees are set by Visa and other card networks and collected by card-issuing banks like J.P. Morgan Chase And Co. Retailers have argued that the fees had been set too high due to a lack of competition with the two payment industry giants.
Smaller retailers settled over the issue in July 2012, but dozens of large merchants including Wal-Mart, Target Corp. and Macy's Inc. opted out so they could pursue suits of their own—hence the suit filed this week.
Companies that opted out of the settlement have argued that the deal wouldn't prohibit card networks from raising card-processing fees later on and would require merchants to waive their rights to sue payment networks on all current or future payment methods, ranging from credit cards to mobile phones.
The settlement received final approval by a federal judge in December, though several retailers have appealed. It is aimed at ending more than 50 lawsuits filed against the card networks and large banks that issue cards since 2005. Under the settlement, merchants stand to receive about $5.7 billion.
Wal-Mart used the lawsuit filed this week to throw in a laundry list of complaints against Visa, including claims that the high fees imposed by the payment network caused the retailer to lose sales.
"The anticompetitive conduct of Visa and the banks forced Wal-Mart to raise retail prices paid by its customers and/or reduce retail services provided to its customers as a means of offsetting some of the artificially inflated Interchange Fees," the company said. "As a result, Wal-Mart's retail sales were below what they would have been otherwise."
Wal-Mart also took a shot against Visa over payment card security. Data breaches last year at Target Corp., Neiman Marcus and others have drawn attention to the country's slow adoption of card technology that uses computer chips and PIN numbers and is seen as less susceptible to fraud than the current system of magnetic stripes.
"Wal-Mart was further harmed by anti-innovation conduct on the part of Visa and the banks, such as perpetuating the use of fraud-prone magnetic stripe system in the U.S. and the continued use of signature authentication despite knowledge that PIN authentication is more secure, a fact Visa has acknowledged repeatedly," it said in the suit.
Visa and MasterCard have been pushing merchants and banks to adopt the technology, arguing it could significantly reduce the impact of data breaches. Both companies have set an October 2015 deadline for merchants to upgrade to the technology or face increased liability for future data breaches.
Some banking groups have previously accused merchants of dragging their feet on adopting the technology.
These fees are set by the credit card networks, and are the largest component of the various fees that most merchants pay for the privilege of accepting credit cards, representing 70% to 90% of these fees by some estimates, although larger merchants typically pay less as a percentage. Interchange fees have a complex pricing structure, which is based on the card brand, regions or jurisdictions, the type of credit or debit card, the type and size of the accepting merchant, and the type of transaction (e.g. online, in-store, phone order, whether the card is present for the transaction, etc.).
Further complicating the rate schedules, interchange fees are typically a flat fee plus a percentage of the total purchase price (including taxes). In the United States, the fee averages approximately 2% of transaction value.
You Are Encouraged To Opt-Out!
People need to wake-the-fuck up!
First, it is important to understand the background of the case. In 2005, various groups of merchants filed a number of class action lawsuits against Visa, MasterCard and various financial institutions which issue payment cards carrying the Visa or MasterCard marks. The class groups of plaintiffs claimed that Visa, MasterCard and the named financial institutions unlawfully set the fees charged to merchants for U.S. credit card transactions over the Visa and MasterCard networks. They also claimed that the rules enacted by the card networks prevented them from adequately protecting themselves against those fees. All of these lawsuits were consolidated in federal court in New York for more efficient management and resolution.
As a result of this litigation, Visa and MasterCard recently announced that they have formally made changes to their acceptance practices related to surcharging. Effective January 27, 2013, merchants are able to surcharge a customer's credit card transaction (not debit or pre-paid) where permitted by local and state laws. Merchants must register with Visa, MasterCard and their acquirer 30 days prior to implementation of surcharging. Merchants who intend to surcharge may continue to notify/register as required by the changes in the acceptance practices. Future updates will be provided as significant changes related to the settlement details occurs.
* Surcharge rules are changing effective January 27, 2013
* February - May 2013 is the window for deadlines for notice to class members, to file objections, and file an opt-out notice
* Final settlement approval hearing is set for September 2013
* If the decision is appealed, the appeal decision will take place by mid to late 2014
* Disbursements of the class settlement fund to merchants may not occur until 2015 (if final approval is granted and not modified on appeal.)
Cash Settlement And Fee Reductions:
* Cash settlement of $6.05 billion due to the class plaintiffs; may be reduced depending on merchants opting out of the proposed settlement.
* Credit interchange fees on U.S. Visa and MasterCard consumer and commercial credit cards will be reduced by 10 bps for a period of 8 months. The 8 month period for the calculation will start July 29th, 2013, at which point Visa and MasterCard will withhold interchange revenue from issuers and place into an escrow account for later disbursement to claimants.
Surcharging Details Effective January 27, 2013
* All merchants who elect to charge a surcharge to a customer's payment card transaction must register with Visa and MasterCard. Note: Registration must occur 30 days prior to implementation of surcharging. Surcharges can only be applied on credit (not debit or pre-paid cards) card transactions.
* Any surcharge must be charged at the brand level (i.e., same surcharge to all Visa and/or MasterCard credit card transactions), or at the product level (i.e. same surcharge to credit card transactions of similar product type, e.g., Visa Signature card, MasterCard World card, etc.). All merchants will need to identify what type of surcharging they will do at the time of their registration.
* Merchant surcharges must not be higher than the cost of card acceptance. Brand level surcharges should not exceed the Merchant Discount Rate. Product level surcharges should not exceed MDR minus the regulated interchange rate adjustment. The maximum allowable surcharge amount should not exceed 4% (this is the current cap, will be periodically reviewed and may change) A clear disclosure notice of any surcharge must be posted for customers at the store entry and at the merchant's Point-of-Sale (POS). Surcharge notices cannot disparage any card brand, card network, card issuing bank or payment card product being used.
* The dollar amount of the surcharge must be clearly disclosed as a separate line item on the transaction receipt provided by the merchant to the customer.
* It's important to note that currently New York, California, Texas, Florida, Connecticut, Massachusetts, Colorado, Oklahoma, Kansas and Maine currently have state laws that prohibit merchants from surcharging consumers. These state laws will take precedence over card brand rules.
* Additional dispute rule modifications are expected but have not been published to date.
* Because the provisions of the proposed settlement require a “level playing field” related to a merchant's decision to surcharge Visa and MasterCard transactions, the ability to collect a surcharge may be impacted by the surcharge rules of other payment types accepted. To create this level playing field among the competitive card brands, the merchant may only surcharge an accepted credit card in the same way in which the merchant would be allowed to surcharge another payment card product which it could accept.
It is important to remember that Merchants should not discriminate or surcharge based on the involved payment card issuer (i.e. national bank, state bank, credit union, etc.).
This is bullshit!!!!
A retail lobbying group that represents Best Buy Co., Wal-Mart Stores Inc. and Target Corp. is objecting to the proposed $7.25 billion class-action settlement with Visa Inc., MasterCard Inc. and several large banks over merchant-transaction fees.
The Retail Industry Leaders Association, whose members include more than 200 retailers, product manufacturers and other firms, also will opt out of the deal as it tries to drum up opposition to a settlement that would end long-standing litigation against the payment networks.
"RILA and the overwhelming majority of our members agree that the proposed class action settlement is a bad deal for retailers," Deborah White, executive vice president and general counsel for the Arlington, Va., group, said in a statement sent by an organization spokesman Thursday.
The trade group is opting out and objecting to the settlement on behalf of itself. Retailers that are members of the group must individually take such steps on their own.
The settlement, announced in July, addresses lawsuits filed in 2005 by several merchant trade groups arguing Visa, MasterCard and several large banks that issue the payment networks' credit cards conspire to set transaction fees that retailers pay at arbitrarily high levels. The fees, known as interchange, are set by Visa and MasterCard but collected by the banks each time their customers swipe their credit cards.
The merchants also alleged the defendants have limited their ability to drive down costs by forcing them to abide by rules that have prevented them from surcharging customers who pay with credit cards.
Under the deal, the defendants have proposed paying $6.05 billion to a class of eight million merchants and temporarily reducing interchange fees by amount equal to $1.2 billion. In addition, Visa and MasterCard agreed to drop their bans on surcharging, a change that took effect in January and allows merchants to add an extra fee to customers who pay with a credit card.
But the deal has sparked opposition from large merchants like Wal-Mart, Target and Home Depot Inc., as well as several trade groups that are named plaintiffs in the litigation, including the National Association of Convenience Stores, National Grocers Association and National Restaurant Association.
They argue the settlement will do little to keep the cost of interchange fees from rising and worry the deal grants overly broad releases from future litigation to the defendants. Under the deal, merchants can opt out of the monetary portion of the settlement but are unable to opt out of the rule changes Visa and MasterCard have made.
"The proposed settlement undermines merchants' legal rights forever and fails to restrain the continued growth of swipe fees increases," Ms. White said.
Proponents of the deal have accused critics of embarking on a smear campaign against the settlement in hopes of drumming up political support on Capitol Hill for potential legislation that would limit credit-card transaction fees more drastically.
Trish Wexler, a spokeswoman for the Electronic Payments Coalition, which represents Visa, MasterCard and large banks on payments issues, called RILA's decision a "public relations stunt designed to distract attention from Thursday's hearing where Washington retail lobbyists are having to defend themselves for putting out misleading information on the settlement."
Ms. Wexler was referring to a hearing in U.S. District Court in Brooklyn, N.Y., scheduled for Thursday afternoon, where several retail trade groups are expected to defend information they have posted on websites urging merchants to opt out and object to the settlement. Last week, Judge John Gleeson ordered the parties to show why they shouldn't be forced to alter information on their websites and send out corrected information to merchants who already may have opted out or objected to the deal based on their information.
Attorneys representing the proposed class of merchants in the case had alleged in court filings that the trade groups were posting inaccurate information on the sites intended to bias retailers against the deal.
Court Rules in Favor of Retailers on Debit Card Fee Cap
In a ruling viewed as a major victory for retailers, U.S. District Judge Richard Leon on Wednesday overturned a Federal Reserve rule placing a cap on debit card fees banks collect from merchants, according to The Washington Post.
Retailers had complained that the Federal Reserve had set the cap too high following intense lobbying by banks, and the judge agreed. Under the Fed rule, banks could charge as much as 21 cents per debit card transaction. Retailers pointed out that the Fed had originally proposed a 12 cent per transaction cap.
By the time the final rule was enacted, it covered additional items including the cost of equipment and technology designed to prevent fraud. The court ruled that this action by the Fed was improper.
Retailers argued that consumers would benefit from a lower fee since costs like these are often passed on by merchants in the form of higher prices.
Ironically, as Reuters pointed out, the cap on debit card fees, also known as the Durbin amendment to Dodd-Frank and named for its sponsor, Senator Richard Durbin of Illinois, was intended to help consumers in the first place.
What happened, as so often is the case in Washington, was lobbying – in this instance by the banking industry.
Following Wednesday’s ruling the banking industry expressed disappointment, urged the Federal Reserve to appeal the decision, and added that merchants are unlikely to reward consumers with lower prices and will simply opt to increase their profits.
The Merchants Payments Coalition, a retailing group, on the other hand said that Wednesday’s ruling “will give relief to merchants across the country and their customers, putting a stop to unconscionable price gouging that is completely at odds with the law,” according to The Washington Post.
While retailers are the big winners, banks and credit card issuers stand to have swiping fees cut more than 50 percent down to as low as 7 cents per transaction, according to a note to investors from Guggenheim Partners.
Because of the ruling, shares of the two largest operators, Visa Inc. (NYSE: V) and MasterCard Inc. (NYSE: MA), plunged Wednesday. Visa stock fell 11 percent and MasterCard dropped six percent but recovered to end slightly higher at the close of trading.
American Express Co(NYSE: AXP) dropped 1.9 percent Wednesday and Discover Financial Services (NYSE: DFS) fell 1.3 percent in late trading.
The 21-cent cap, Reuters reported, will probably remain in place until the Fed either rewrites the rule or decides to appeal. Barbara Hagenbaugh, a Federal Reserve representative, indicated that the agency was in the process of reviewing the judge’s ruling.
1. Merchants Payments Coalition, Inc.
325 7th Street N.W. Suite 1100
Washington, D.C. 20004
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