UPDATE: Wal-Mart, Costco, Other Merchants Push Back Against Swipe-Fee Settlement

--19 merchants say they are objecting to and opting out of a pending settlement with Visa and MasterCard

--Group says settlement strips merchants of their legal rights

--Payments trade group says it is confident move will not prevent settlement from receiving final approval

(Updated with National Retail Federation announcement in paragraph six, comment from MasterCard in paragraph nine, comment from Electronic Payments Coalition in paragraphs 13-14 and new details throughout.)

 
   By Andrew R. Johnson 
 

A group of 19 large retailers, including Wal-Mart Stores Inc. (WMT), Costco Wholesale Corp. (COST) and Starbucks Corp. (SBUX), are opting out of a pending class-action settlement with Visa Inc. (V) and MasterCard Inc. (MA), potentially setting the stage for more battles over transaction-processing fees.

The merchants say the pending deal reached last summer won't stop so-called swipe fees from rising and violates their legal rights by preventing them from bringing legal action against the credit-card networks for alleged anticompetitive behavior in the future.

"If this settlement is approved, it would allow credit card companies and big banks to perpetuate an unfair and broken system that costs all consumers, including those who don't even have a credit or debit card," Mike Cook, senior vice president of finance and assistant treasurer for Wal-Mart, said Tuesday in a statement.

The group of merchants, which also includes Gap Inc. (GPS), Lowe's Cos. (LOW), Nike Inc. (NKE), 7-Eleven Inc. and Alon Brands Inc., said they are objecting to and opting out of the settlement. They also are considering "additional legal action to recover damages from Visa and MasterCard under U.S. antitrust laws," according to a statement from the group.

WHAT IS THE SETTLEMENT

WHAT ARE SWIPE FEES

By opting out, the retailers forfeit their right to monetary payments set to go to merchants that accept Visa and MasterCard cards under the settlement.

Separately, the National Retail Federation, a Washington, D.C.-based trade group, said Tuesday it also plans to object to and opt out of the settlement.

The move comes a week before a court deadline to object to and opt out of the deal, which was announced last July.

Judge John Gleeson of U.S. District Court in Brooklyn granted preliminary approval to the settlement in November, and a hearing on final approval is scheduled for Sept. 12.

"MasterCard is confident that the U.S. District Court for the Eastern District of New York will grant final approval for the U.S. Merchant settlement," a spokesman for Purchase, N.Y.-based MasterCard said Tuesday.

A spokesman for Visa declined to comment.

Supporters of the deal have previously argued its critics have misconstrued the terms of the settlement in an effort to drum up support for legislation that could permanently limit credit-card swipe fees.

Wal-Mart and numerous other retailers in 2010 successfully lobbied for federal legislation known as the Durbin amendment, which cut in half the amount of fees merchants pay to accept debit cards. The provision did not affect credit-card swipe fees.

Trish Wexler, a spokeswoman for the Electronic Payments Coalition, which represents Visa, MasterCard and large banks, said Tuesday the complaints made by Wal-Mart and the other merchants were already raised during the course of the litigation.

"Had these arguments had any merit or strength, they would have been included in the final settlement," Ms. Wexler said. "We remain fully confident that this will have no material impact on the settlement's final approval in the fall."

If approved, the settlement would deliver up to $6.05 billion to as many as eight million merchants who accept Visa and MasterCard cards. The defendants have also agreed to temporarily lower swipe fees, also known as interchange rates, by an amount equal to $1.2 billion.

Some changes have already been made as a result of the settlement. For example, Visa and MasterCard in January eliminated rules that previously prohibited merchants from tacking on an extra fee to customers who pay with a credit card.

The deal is intended to put to rest litigation filed against Visa, MasterCard and several large banks that issue the payment networks' credit cards, including Bank of America Corp. (BAC), J.P. Morgan Chase & Co. (JPM) and Capital One Financial Corp. (COF).

The suits, filed by merchants and trade groups, alleged that the defendants conspired to set transaction fees that retailers pay each time a customer pays with a credit card at arbitrarily high levels. The fees are set by Visa and MasterCard and collected by the banks that issue their cards as revenue.

But the settlement has drawn heated opposition from several trade groups, including named plaintiffs in the suits, as well as some large merchants. The opponents, which want to derail the deal, argue the amount being paid is a drop in the bucket compared with the amount of interchange fees they've paid over the years.

Opponents of the settlement also argue that it strips them of their right to due process by not allowing them to opt out of the rule changes, which apply to all merchants regardless of whether they opt out of the settlement.

Write to Andrew R. Johnson at [e-mail]

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