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Visa, MasterCard Merchant Fee Settlement Sent to Judge

Visa Inc. and MasterCard Inc.’s settlement of a merchants’ lawsuit over credit card fees, a deal that may cost the companies and banks as much as $7.25 billion, was submitted for approval to a federal judge.

Plaintiffs’ lawyers today formally asked U.S. District Judge John Gleeson in Brooklyn, New York, to sign off on the agreement covering about 7 million retailers. The settlement would resolve seven years of litigation over allegations that Foster City, California-based Visa and Purchase, New York-based MasterCard conspired with major banks to fix the fees merchants pay when customers use a credit card.

“Today’s filing is an important milestone toward resolving the long-running litigation between the nation’s retailers, financial institutions and payment networks,” Josh Floum, Visa’s general counsel, said in a statement. “When finalized, this settlement will bring to an end nearly 10 years of repeated legal challenges against the default interchange system.”

A hearing on preliminary approval of the settlement is expected to be held in December or early next year, according to attorneys involved in the case. Final approval of the deal may take a year, said Robert Stolebarger, a lawyer for the Electronic Payments Coalition, a credit- and debit-card industry group that has advised the defendants.

“I fully expect that this will go on for a while,” he said in a phone interview. “I think everyone was prepared for that.”

Retailer Opposition

Several merchant trade organizations and large retailers oppose the settlement, arguing its terms, including releases from future claims regarding so-called interchange fees, are too generous.

Groups and companies that have spoken out against the deal include the Retail Industry Leaders Association, the National Retail Federation, the National Restaurant Association, the National Community Pharmacists Association and the National Association of Convenience Stores, as well as retailers Wal-Mart Stores Inc. and Target Corp.

“We look forward to making our case to the courts that this one-sided deal should be rejected,” the Retail Industry Leaders Association president, Sandy Kennedy, said in a statement. “The outrage within the retail community over this flawed proposal and the harm that it will cause cannot be understated.”

Formal Objection

A lawyer for some of the other groups, Jeffrey Shinder, said he also plans to file a formal objection.

Since the settlement was made public in July, 10 of 19 retailers who were plaintiffs in the suit have dropped out of the deal, according to K. Craig Wildfang, a lead lawyer for the plaintiffs.

Wildfang said no material changes were made to the deal since its release. The proposal includes cash payments of $6.05 billion, an eight-month reduction in interchange rates for merchants and rule changes that could potentially allow retailers to impose surcharges on customers’ purchases, according to court documents.

Plaintiffs who did sign on include Payless ShoeSource Inc., Photos Etc. Corp., Discount Optics Inc. and Leon’s Transmission Service Inc., according to the court papers filed today.

“The agreement is very much in the interests of the merchants and those who have objected are either misinformed or have other agendas, or both,” Wildfang said in an interview. “We are way over the bar for preliminary approval and we hope and expect that Judge Gleeson will agree with us.”

Political Motives

Electronic Payments Coalition representatives said the groups who oppose the deal may have political motives.

U.S. Senator Richard Durbin ’s office has told retailers that they may lose out on future legislative opportunities to rein in credit-card fees if they support the settlement. Durbin, a Democrat from Illinois, secured the inclusion of limits on swipe fees for debit cards in the 2010 Dodd-Frank Act, trimming revenue for the largest U.S. banks by about $8 billion.

Visa said today in a filing to the U.S. Securities and Exchange Commission that its share of the settlement will be about $4 billion. Other defendants include about a dozen banks, including Citigroup Inc., HSBC Bank Holdings Plc, PNC Bank, Wells Fargo & Co. and Bank of America Corp., according to the filing.

“As with any settlement, both sides had to give a little or a lot here and there to reach a compromise, and as a result, no one is entirely happy,” Stolebarger said in a statement. “But in the end, in my view, this settlement represents the very best and most realistic outcome possible for all involved.”

The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-01720, U.S. District Court, Eastern District of New York (Brooklyn).

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