-National Grocers Association says settlement doesn't address interchange issues
-Settlement would end lawsuits dating back to 2005
-Merchants will have ability to opt in or out of the settlement
(Adds details beginning in second paragraph, attorney comments in seventh paragraph, Visa CEO comments in 11th paragraph, and merchant sales volume in 14th-15th paragraphs.)
By Andrew R. Johnson
The National Grocers Association, one of the plaintiffs suing Visa Inc. (V) and MasterCard Inc. (>> Mastercard Inc) over credit-card transaction fees, said Thursday it opposes the $7.25 billion class-action settlement reached in the case earlier this month.
The Arlington, Va.-based trade group, which represents more than 1,200 companies, is among a growing number of associations to blast the deal for what they say is a failure to address problems in how the card networks set so-called interchange or swipe fees. Target Corp. (>> Target Corporation) and Wal-Mart Stores Inc. (>> Wal-Mart Stores, Inc.), which aren't plaintiffs, have also criticized the settlement, which requires court approval.
The National Grocers Association "joined the lawsuit on behalf of its independent retail grocer members over seven years ago to bring about real reform of the anticompetitive credit-card swipe fee system," said Peter Larkin, president and chief executive of the trade group, in a statement. "This proposed settlement agreement fails in this regard by allowing Visa and MasterCard to continue their dominant anticompetitive practices."
The NGA's decision to oppose the settlement applies only to the trade group itself, not its members, which will have the ability to formally opt in or out of the agreement. Analysts don't expect enough merchants will opt out of the deal to derail it.
The NGA is among 19 proposed class representatives that sued the card networks and numerous card-issuing banks, arguing the companies conspire to set interchange fees arbitrarily high. Another plaintiff, the National Association of Convenience Stores, also said it rejected the deal when it was announced July 13.
Both groups have hired law firm Constantine Cannon LLP, which previously helped win a $3 billion settlement for merchants in lawsuits against Visa and MasterCard, to represent them in the case.
"We think that those who are opposed to the settlement are extraordinarily misguided because they haven't considered the practical alternatives to the settlement, which are very undesirable for merchants because it involves another four or five or six years of litigation and no realistic opportunity for a better outcome even after more litigation," said Craig Wildfang, a partner with Robins, Kaplan, Miller & Ciresi LLP, one of the law firms representing the class plaintiffs in the suit.
Under the settlement, Visa, MasterCard and card-issuing banks including Bank of America Corp. (>> Bank of America Corp) and J.P. Morgan Chase & Co. (>> JPMorgan Chase & Co.) agreed to pay more than $6 billion to merchants. The card networks also agreed to temporarily reduce swipe fees, or interchange fees, on credit-card transactions and allow merchants to surcharge customers who pay with cards, an ability that retail groups have sought but Visa and MasterCard prohibited.
The grocers group said the ability to surcharge customers includes "burdensome restrictions," which makes it "unlikely that many of NGA's members will be able to make this provision workable."
The provision would require merchants to post signs notifying customers that they surcharge and include the amount of any fee on receipts, measures that the card networks said are intended to protect consumers. Merchants also wouldn't be allowed to surcharge Visa and MasterCard cardholders more than what they charge customers paying with American Express Co. (>> American Express Company) and Discover Financial Services (>> Discover Financial Services) cards.
A spokesman for MasterCard declined to comment on the NGA's statements. A Visa spokesman didn't immediately respond to a request for comment, though Visa Chairman and Chief Executive Joe Saunders said on a conference call Wednesday the company expects the settlement will "have support among the retail community in the U.S. because it is a fair and an appropriate compromise for all parties."
The settlement would put to bed more than 50 lawsuits that have been consolidated in the U.S. District Court in Brooklyn since 2005 and have been an overhang on Visa's and MasterCard's shares. Merchants will have the opportunity to opt in or out of the settlement, though retailers that opt out would only be able to pursue future litigation related to monetary damages, not for reductions to interchange or rule changes.
If merchants representing 25% of Visa and MasterCard's credit-card sales volume opt out of the settlement, the card networks have the ability to cancel it.
The likelihood of that occurring, though, is slim, according to Keefe, Bruyette & Woods, which performed an analysis of sales of the top 100 U.S. retailers. Those merchants combined equal about 25% of Visa and MasterCard credit-card volume, KBW said, noting 15 of those retailers have already agreed to a separate settlement with the card networks.
"Even in the worst-case scenario where all of the remaining top 85 retailers...opt out of a settlement, their representation of volume would amount to roughly 20%," KBW said. "Outside of a coordinated and large retailer movement to opt out of a settlement, we believe the risks to a settlement are relatively low."
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