More than half a million retailers should begin receiving checks totaling over $1 billion this week as the result of a federal judge’s approval of an early payout of funds remaining from the 2003 settlement of a lawsuit brought by NRF and others against Visa and MasterCard’s debit card practices.
The funds will give many retailers struggling to make a profit during the current recession a welcome influx of cash at a time when slow sales and the ongoing credit crunch have left some short of operating cash needed to fully stock shelves and staff stores during the important holiday season.
The class-action lawsuit, brought by NRF and about 20 of the nation’s largest retailers in 1996, was settled in 2003 for $3.1 billion.
Visa and MasterCard were allowed to pay the damages on an installment plan scheduled to run through the end of 2012, and have paid about $1.85 billion so far. Most of the funds received have been distributed to merchants represented in the suit, but retailers had expected to wait almost three more years to receive the remainder.
Rather than continue to make yearly installments, Visa and MasterCard agreed this fall to pay $1.1 billion all at once. The agreement means retailers will receive slightly less than originally agreed on, but the money will come in time to help with the current economic situation.
U.S. District Court Judge John Gleeson initially approved the plan on November 6, but distribution was delayed by a court challenge regarding interest payments.
The challenge was rejected, and Gleeson gave final approval last Wednesday. On Thursday of last week, Jeffrey Shinder, managing partner of the New York office of lead counsel Constantine Cannon, filed a letter with the court indicating that checks may be distributed as early as this week.
The payments will go to about 635,000 merchants, with each one’s share based on their volume of signature debit card transactions during the period covered by the lawsuit.
Retailers can see details about the distribution plan on the lawsuit website.
The lawsuit alleged that Visa and MasterCard’s “honor all cards” practice of requiring retailers who accept their credit cards to also accept their “Visa Check” and “Master Money” debit cards was a violation of federal anti-trust law. Merchants objected to the cards in part because the signature-based cards carry higher transaction fees than independent bank debit cards activated by a PIN number. In addition to the named plaintiffs, the lawsuit was a class action representing anyone who had accepted Visa or MasterCard debit cards from October 1992 through early 2003.
In addition to the $3 billion in damages, Visa and MasterCard agreed to no longer require merchants who accept their credit cards to accept their debit cards. Merchants were also allowed to choose whether to accept both signature and PIN debit, one or the other, or no debit cards at all.
The lawsuit was a major first step in retailers’ fight with Visa and MasterCard over card fees. NRF is currently pushing for passage of House and Senate legislation that would bring soaring credit card and signature debit card interchange fees under control. The amount of interchange collected from merchants and their customers has increased from $16 billion to $48 billion since 2001.
The article above is reprinted from the current issue of Washington Retail Insight, NRF’s weekly e-newsletter covering public policy issues affecting the retail industry.