It’s like everyone wants the last word when it comes to swipe fee agreements.
First, there were the back-and-forth negotiations where the Federal Reserve would propose a rule to cap debit card swipe fees, banks would speak out either in favor of or against it, and merchants would inevitably pick up the opposite mantle until a final limit was eventually put into place.
Now, when final judicial approval is all that stands between the settlement of an anti-trust agreement between a contingent of merchants and Visa, MasterCard, and a number of major banks over alleged collusion in setting credit card swipe fees over the years, many of the merchants involved are getting cold feet.
Target, Walmart, the National Grocers Association, and the National Retail Federation are among those that have spoken out in opposition of the settlement, which would score them a $7.3 billion payout and an eight-month reduction in credit card swipe fees worth another $1.25 billion, but would also come at a price.
While the deal supposedly also gives merchants the ability to lower costs by assessing surcharges to customers who pay with credit, which is more expensive to process than cash or debit cards, conflicting rules prevent roughly half of all merchants from doing so, and many others won’t for fear of losing business. What’s more, not only could the financial damages garnered through this settlement get easily recouped if the card networks raise their swipe fees following the eight-month reduction, but the settlement would also require that merchants waive certain rights to take legal action against credit card companies in the future.
The question is has the time for opposition already come and gone?
Well, there are a number of reasons why a judge can reject a proposed class-action settlement, including the determination that it does not offer all members of the class value or if a substantial number of class members opt-out of it in order to pursue alternative claims. That means all is not yet lost for those merchants who want more out of their lawsuit, and the credit card companies still have some work to do if they want their hard-earned deal to hold up.
Opposed merchants will likely seek three substantial changes to the current settlement agreement: 1) The elimination of language preventing future legal action against credit card companies; 2) Lowering the barriers preventing many merchants from assessing credit card surcharges; and 3) Making the temporary credit card swipe fee reduction more permanent. Each of these changes is more likely to take place than the next.
As consumers, we should be rooting for the credit card companies to cave when it comes to protection against future litigation because we’ve seen what they’re capable of in the absence of oversight. In terms of the other two merchant gripes, well, things could change dramatically for consumers if merchants get their way.
Not only would credit card use surely decline if consumers had to pay more every time they wanted to use this type of plastic, but if credit card swipe fees fall (either as a direct result of a legal settlement or pressure from issuer surcharges), credit card companies will offer less attractive terms while making their products more expensive to use.
So, it is with a vested interest that we will watch how this settlement debate plays out in the coming months. And if you’re a member of the class suing the credit card companies, it’s time to decide which side you stand on.