California Apparel News

Visa Inc. and MasterCard Inc. settledwhat is reportedly the largest antitrust case inU.S. history. If the settlement is approved by ajudge, Visa and MasterCard will create a fundof $6 billion, which will be made availableto the merchants that claimed Visa and MasterCardconstrained competition, accordingto the settlement papers, which were filed infederal court in Brooklyn, N.Y. The case wasfirst filed in 2005. Plaintiffs included retailerssuch as Payless ShoeSource Inc. and trade associationssuch as the National Association ofConvenience Stores.

According to lawyers for the plaintiffs, thetwo retail payment-industry giants, along withbanks, illegally set swipe fees, or interchangefees, for credit cards. Merchants pay the swipefees to issuing banks for making paymenttransactions. Many merchants claim swipe feesrank as one of their top costs of doing business,and these fees have been skyrocketing overthe past decade. Retailers' swipe fees for debitcards had been lowered recently in accordancewith the Durbin Amendment section of theDodd-Frank Wall Street Reform and ConsumerProtection Act, which was passed in 2010.Along with protecting Visa and other companiesfrom future litigation on interchange fees,the recent settlement deal agrees for the followingchanges to begin in 2013, according toa Visa statement:

• The payment-industry companies agreedto reduce swipe fees for the equivalent of 10basis points for eight months.

• Merchants will be allowed to negotiatecollectively over the swipe fees.

• According to Visa, the settlement willmake a "modification to Visa rules," which allowsretailers to impose a surcharge on creditcard transactions.

• The modification of this rule would allowretailers to steer consumers to paymentmethods that don't involve swipe fees—suchas cash—or cards with lower swipe fees.

• This part of the settlement will not affectCalifornia retailers because California is one of10 states that forbids these surcharges.

Lawyers for the plaintiffs described the settlementas a harbinger of big change. "This isa historic settlement," said Bonny E. Sweeney,the senior antitrust partner for Robbins GellerRudman & Dowd LLP, the plaintiffs' firm."In addition to refunding billions of dollarsto retailers that paid artificially inflated interchangefees, the reforms will create real pricecompetition, leading to reduced card-acceptancefees for retailers."

A statement from Visa expressed relief fromfighting the litigation. "We believe settling thiscase is in the best interests of all parties," saidJoseph W. Saunders, chairman and chief executiveofficer of Visa. "We are comfortablewith the terms, which we do not anticipate willimpact our current guidance."

Trade group National Retail Federation,which was not a plaintiff, was not satisfied withthe settlement. "The test will be whether theinjunctive relief is meaningful. Unless it is, thecard market will stay broken and neither merchantsnor their customers will achieve a longtermbenefit," said NRF Senior Vice PresidentMallory Duncan.

Retail consultant Howard Davidowitz did notanticipate prices will be lowered for consumersas a result of the settlement, nor will retailersfind much relief. Instead, the payments industrywill find another way to charge retailers for usingcredit cards, he said. "This is their cost of doingbusiness," said the chairman of New York–based Davidowitz & Associates Inc., a retailconsultancy and investment bank. "This was anon-event," he said. —Andrew Asch