Visa, MasterCard and all banks that issue either or both of their credit cards reached an antitrust settlement on late Friday that includes a $7.25 billion payout and assurances that stores may now offer different forms of payment that are cheaper for consumers. It’s the largest settlement in American history and one that’s been delayed, started and delayed again for years. It’s just another settlement in a series of similar suits filed in recent years.
While it must first be approved by a judge, if and when it is, will eliminate dozens of lawsuits that date back to 2005. The numbers work out to around $6 billion in payments to a “class of stores” from not only Visa and MasterCard, but many of its banks. It will also result in an eight month reduction of swipe fees these stores pay, which will equate to around $1.2 billion. For those stores that filed individual suits, they will receive a portion of $25 million.
Calling it a “historic settlement”, one plaintiffs’ lawyer, Bonny Sweeney, said these reforms will pave the way for pricing competition while reducing credit card acceptance fees for retailers around the nation. It could change much more than that, depending on the judge’s discretion. MasterCard said its interests were “best served by an amicable resolution” while Visa’s statement said it didn’t anticipate any impact to its current guidance strategy. Neither credit card company admitted any wrongdoing.
The plaintiffs, including Rite Aid, Corp., Payless Shoe Source, Kroger – along with the National Association of Convenience Stores, American Booksellers Associations and the National Grocers Association, among others, filed the lawsuits because they believed the credit card networks
colluded directly and indirectly through the issuing banks to keep merchants from finding ways to mitigate credit-card costs.
These types of complaints aren’t new; however, the banking dynamic that was tossed into the mix does present an interesting contrast. Even more interesting is the fact JPMorgan Chase was consistently included in the various suits. It too was named in this specific lawsuit.
For the past decade, there’s been an ongoing battle over various payment policies. This isn’t the first billion dollar-plus lawsuit the credit card companies have lost. In 2003, they collectively paid more than $3 billion to settle a suit over various policies that dictated the types of payment policies stores could accept.
Then, two years ago, the U.S. Department of Justice filed a civil antitrust suit against Visa and Mastercard. It was also settled the same year and as a result, the companies agreed to drop certain policies that kept stores from steering their customers to cheaper forms of payment. Considering around 80% of all credit card transactions in the U.S. are completed via MasterCard or Visa, with Discover and American Express accounting for the rest of the transactions, these types of antitrust suits tend to worry investors.
In anticipation of the settlement, Visa had already put aside close to $2 billion in December 2011. This brought its total litigation reserve balance to $4.28 billion, according to a regulatory filing. For its part, and according to papers filed with the U.S. Securities and Exchange Commission, in the fourth quarter of 2011, MasterCard recorded a $770 million pre tax charge, as an estimate of its potential liability in the case.
None of the banks involved in the suit, including JPMorgan, have released any statements to date.