Despite Opposition, Judge Grants Preliminary Approval to Swipe Fee Deal

On Friday, November 9, U.S. District Court Judge John Gleeson granted preliminary approval to a proposed class-action settlement of a federal antitrust lawsuit over rapidly rising Visa and MasterCard credit card swipe fees. The decision to grant preliminary approval came after hearing oral arguments from both opponents and proponents of the settlement. Opponents plan to appeal the judge’s ruling.

Ten of the original 19 named class plaintiffs oppose the settlement. In addition, three associations — the American Booksellers Association, the National Association of College Stores, and the National Retail Federation — and 17 retail and restaurant companies filed a brief in opposition to the settlement last week.

In response to the judge’s decision, the National Association of Convenience Stores announced this week [1] that it is joining with other named plaintiffs to file a notice of appeal to challenge the ruling. The opposing named plaintiffs have indicated that they will ask the U.S. Court of Appeals for the Second Circuit to deny preliminary approval due to the legal defects in the proposed settlement. Said NACS President and CEO Hank Armour in a statement, “It is unclear whether a stay will be issued to prevent notices of the settlement going to the millions of merchants who accept credit cards.”

At last Friday’s hearing, opponents stressed that the settlement does not provide for competition or transparency in the credit card market, as reported by Convenience Store News [2] (CSN).

However, Judge Gleeson said that the concerns raised by opponents at the hearing had been “overstated” and that opponents haven’t provided ample arguments to “derail preliminary approval,” according to MarketWatch [3]. With preliminary approval granted, changes to Visa and MasterCard rules will take effect in 60 days, CSN reported.

Following the judge’s decision, the National Retail Federation said that it will explore all legal options. “We respectfully disagree with the court’s assessment of the proposed settlement,” National Retail Federation Senior Vice President and General Counsel Mallory Duncan said. “We do not believe the proposal meets the legal tests required to meet even preliminary approval. Retailers, their customers, and competition would suffer irreparable harm if this one-sided deal is allowed to move forward. We will consult with our attorneys and act as soon as possible to correct this injustice.”

“This proposal benefits no one but lawyers and credit card companies, and should not be forced on the retail industry or retailers’ customers,” Duncan said. “It’s a morass of legal flaws, and rather than bringing about reform it would only entrench the anticompetitive behavior of the card companies while putting them beyond the reach of the law.”

NRF argued in its brief that the settlement could not legally be certified as a class action because it attempts to force a uniform solution onto a diverse group of merchants. It also said that a provision barring all retailers — including those that opt out of the settlement and even those that do not yet exist — from filing future lawsuits over swipe fees is impermissibly broad under federal law. In addition, the proposal allows retailers to reject payments offered as compensation for past price-fixing but gives no mechanism to opt out of what NRF argued is a flawed injunctive relief, which would allow card companies to continuing price fixing and fee increases in the future.