Swipe Fee Settlement Gets Preliminary Approval

Despite an outcry from retailers and trade groups, the proposed $7.25 billion settlement between merchants and Visa, MasterCard and several large banks over interchange fees took another step to becoming reality on Friday when a federal judge granted preliminary approval of the settlement.

The decision by U.S. District Judge John Gleeson of Brooklyn allows the plaintiffs to begin signing up retailers that might be eligible to receive payment. The judge still has to give final approval before the settlement takes effect.

The case began in 2005 when retailers filed complaints against Visa, MasterCard and other credit card companies, accusing the issuers of collaborating to fix the interchange or swipe fees they charge merchants for accepting credit cards.

The proposed agreement was reached in July when MasterCard, Visa and major banks agreed to pay more than $6 billion to resolve accusations that they engaged in anti competitive practices and price fixing in payment processing. In addition, credit card companies agreed to reduce swipe fees for eight months, an adjustment valued at $1.2 billion.

The settlement would also allow retailers to charge higher prices to their customers for paying with credit cards. Before this settlement, the card companies prohibited retailers from adding this type of surcharge.

But trade groups and retailers feel the settlement leaves issuers with too much control over swipe fees and prevents further litigation. They feel the industry would continue to take advantage of merchants and their customers.

The majority of the plaintiffs in the case oppose the settlement, including the National Association of Convenience Stores, the National Restaurant Association, and the National Grocers Association. It is also opposed by a substantial number of merchants, including the world's two largest retailers, Walmart and Target.

If the settlement is approved, it would be the largest federal antitrust settlement in U.S. history. The $7.25 billion could be divided among an estimated 8 million merchants.