July 15, 2012

Visa, MasterCard to pay $6.05B in credit card interchange settlement

July 16, 2012 – A class action settlement proposed Friday would require Visa, MasterCard and some member banks to pay an estimated $6.05 billion to retailers, shave interchange fees for eight months and allow merchants to assess a surcharge on credit card transactions.

The class in this suit includes some 7 million merchants, and they must confirm they wish to remain in the class before the agreement can go forward. The settlement would be the largest in history.

In the lawsuit that led to the settlement, retail companies alleged that the banks and credit card companies colluded to maintain higher credit card interchange fees. The suit sought compensation for alleged overcharges.

The memorandum of understanding for this agreement provides for an up-front payment of $6.05 billion to class members. Visa and its banks pay two-thirds and MasterCard and its banks pay one-third. In addition:

  • Merchants that do not opt out of the class will get a reduction in credit card interchange of 10 basis points per transaction for eight months. This affects all card issuers and is estimated to be worth about $1.2 billion. In the meantime, rules will be put into effect to allow merchants in "properly formed" groups to negotiate with payment networks on interchange fees.
  • Merchants will be allowed to assess a surcharge on credit card transactions at point of sale where state law permits it. If surcharging, the merchant must provide notice and disclosure at its entrance, at point of sale and on the receipt. The surcharge, or checkout fee, is subject to a cap.

A final settlement agreement is due to be completed this October, followed by a motion for preliminary approval by the class. If more than 25 percent of the class opts out, the plaintiffs could reject the settlement. If the settlement is accepted, a court order granting final approval could come in mid- to late 2013, after which the eight-month, 10bp reduction in interchange would begin.

NAFCU will be monitoring the impact of the settlement on its member credit unions.