On September 12, 2013, the U.S. District Court for the Eastern District of New York will hold a hearing to decide whether to give final approval to a class action lawsuit claiming that Visa, MasterCard and several banks conspired to charge merchants excessive interchange fees. Last November, the court gave preliminary approval of the settlement despite strong opposition from the merchant community. Under the settlement, Visa, MasterCard, and the bank defendants will make payments to two funds:
- Cash Fund. A $6.05 billion fund that will pay valid claims of merchants that accepted Visa or MasterCard credit or debit cards at any time between January 1, 2004 and November 28, 2012.
- Interchange Fund. A fund estimated to be approximately $1.2 billion of interchange fees (about two months’ worth of interchange) attributable to certain merchants that accept Visa or MasterCard credit cards for an eight-month period o start by July 29.
While the settlement changes some Visa and MasterCard rules, NATO opposes final approval because the settlement does not institute solutions to fix fundamental problems with the current interchange fee system. Furthermore, the proposed settlement requires class members to release Visa and MasterCard from liability for any anticompetitive rules in place.
For more information, visit www.PaymentCardSettlement.com.
As part of the proposed settlement agreement, Visa and MasterCard have relaxed the surcharging prohibitions on merchants as of January 27, 2013 (debit is not included). Merchants who accept Visa and MasterCard credit cards will be allowed to add a surcharge to the purchase price equal to the cost of processing the transaction subject to a cap of 4 percent. View the Visa rule changes here and the MasterCard rule changes here.
While merchants are allowed to surcharge under terms of the settlement, the National Retail Federation identified the following obstacles that will make it difficult to do so:
- Currently, 10 states (California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas) prohibit surcharging. These states represent more than 40 percent of total card sales across all industries.
- While the surcharge can vary based on the type of card (higher for rewards or premier cards), merchants will have difficulty implementing the rule since they don’t know the fees for specific cards.
- Merchants who surcharges Visa or MasterCard must also surcharge other cards, such as American Express and Discover. American Express rules, however, bar surcharges. As a result, merchants who accept American Express cannot add surcharge any other credit cards. Note, American Express’ operating rules are currently the subject of litigation by the Department of Justice.
- Merchants (1) are required to give Visa and MasterCard notice at least 30 days in advance of beginning to surcharge, (2) must alert consumers of surcharges, and (3) update point of sale systems.