On December 13, 2013, the court granted final approval of a class action settlement valued at $7.25 billion, the largest antitrust settlement in U.S. history.
The class action lawsuit was originally filed on October 20, 2005, against MasterCard, Visa, and several large banks. The lawsuit was filed on behalf of a class of merchants who accepted MasterCard or Visa credit or debit cards at any time from and after January 1, 2004. The class is estimated to be approximately 12 million merchants. The lawsuit claims that the credit card companies unlawfully conspired with major banks to artificially inflate interchange fees – the per-transaction fees paid by merchants to process electronic transactions involving credit and debit cards—also called “swipe fees.”
Merchants eligible for relief from the settlement may receive cash payments and/or the benefit of rule changes made by MasterCard and Visa. Among other things, the settlement provides for the following:
- Rule Changes: The main rule change resulting from the settlement is that MasterCard and Visa have permitted merchants, beginning January 27, 2013, to charge their customers a surcharge of up to 4% on credit card transactions under certain conditions (to the extent not prohibited by the laws of individual states).
- Cash Payments: MasterCard and Visa agreed to create two cash funds worth approximately $7.25 billion (before reductions for opt-outs): (1) a fund of $6.05 billion to compensate merchants for past damages (the Cash Settlement Fund); and (2) a fund to provide an eight-month reduction in interchange fees worth about $1.2 billion (the Interchange Fund). However, the Cash Settlement Fund has been reduced by 25% to approximately $4.5 billion to account for the number of merchants who have opted-out of the settlement.
A class administrator has been appointed to manage the process of distributing the settlement funds, and class members should already have received a notice (sent in early 2013) with details of the settlement and instructions on how to join in, oppose, or opt out of the settlement. The deadline to oppose or opt-out of the settlement expired May 28, 2013.
Many merchants have argued that the settlement does not go far enough in offering relief to affected merchants and that the release granted to the defendants is too broad. During the objection period, thousands of merchants objected to the settlement, representing about 0.05% of potential class members and 19% of the total transaction volume. In fact, final implementation of the settlement has been delayed by numerous appeals filed by retailers and trade associations that oppose the settlement, including the National Retail Federation, Target Corporation, Wal-Mart Stores, Inc., and Blue Cross Blue Shield. The settlement will not become final until all appeals have been resolved.
If the settlement becomes final, each merchant who has not opted out will be eligible to receive damages calculated based upon the total dollar value of all claims filed minus the costs of class administration and notice and attorneys’ fees and expenses approved by the court. Each merchant’s share of the Cash Settlement Fund will most likely be based on the merchant’s actual or estimated interchange fees attributable to the merchant’s MasterCard and Visa transactions from January 1, 2004, through November 28, 2012. Each merchant’s share of the Interchange Fund will be paid in proportion to all claims and will be based on one-tenth of 1% of the merchant’s MasterCard and Visa credit card transaction volume during an eight-month period from July 29, 2013, through March 29, 2014. No payments from either fund will be paid until all appeals have been resolved.
Merchants desiring to participate in the settlement must fill out a claim form approved by the court. Claim forms are not yet available and will not be approved until the settlement becomes final. Once a claim form is approved, claim forms will be sent to all merchants who received a notice in the mail. Claim forms will also be available on the official settlement website and upon request from the class administrator.
For up-to-date information on the status of the case, merchants should monitor the official website for the settlement at www.paymentcardsettlement.com. The website has current updates, frequently asked questions, copies of important court documents, and other information regarding the case and settlement.
If you have any questions about how the information in this article may affect you or your business, please call (608) 257‑2281 or contact your Stroud attorney.
DISCLAIMER: The information in this article is provided for general informational purposes only, is not necessarily updated to account for changes in the law, and should not be considered tax or legal advice. This article is not intended to create, nor does the receipt of it constitute, an attorney-client relationship. You should consult with your own legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.