If history tells us anything about the card network and card issuing bank interchange system, it is this: the proposed terms of the settlement will not provide greater transparency or reductions in interchange fees moving forward. Merchants will continue to face complexity, obscurity and substantial costs in the long term, writes Chelsey Kukuk, payment card expert at Redbridge.
On January 24, the Court preliminarily approved a proposed settlement of $5.54 – $6.24 billion in the antitrust action brought by twelve million nationwide merchants against Visa and MasterCard networks. Merchants claimed to pay excessive fees to accept Visa and MasterCard cards, because the card networks violated antitrust laws both individually and collectively along with their respective member banks.
The lawsuit has been in ongoing litigation for 13 years. There have been more than 60 million pages of documents reviewed and over 550 depositions. The final settlement will be determined on November 7, 2019, at the United States District Court for the Eastern District of New York.
The exact amount is pending this final approval and will change depending on the class members that exclude themselves from the Rule 23(b)(3) Settlement Class. If the settlement is approved, any merchant that received a settlement notice will also receive a claim form. Claim forms can also be located online at www.paymentcardsettlement.com.
Several third-party settlement recovery firms are actively seeking to engage merchants in order to process claims on their behalf. Most of these services promise to calculate, build and submit the necessary financial models on a contingency basis. They typically advertise fees anywhere from 20% – 40% of the total claim amount.
Before entering into an agreement with a third party settlement firm, it is important to note that each merchant can file with the Class Administration on its own, free of charge. The Class Administration or Rule 23(b)(3) Class Counsel provides assistance with understanding and filing the claim forms.
On the surface, this settlement appears to be a major win for merchants. However, from a long term perspective, it is the financial outcome that the Card Brands and Major Issuing Banks had hoped for. Look no further than the upward bounce of the stock prices for all of the defendants after the settlement was announced.
The settlement does provide a cash payout, but does nothing to change, reduce or clarify a very complex and very expensive credit card Interchange structure for the long term. At Redbridge, we still continue to see additions and increases to current interchange rate categories and the introduction of new interchange classifications. If history tells us anything about the card network and card issuing bank interchange system, it is this: merchants will incur increased costs in the long term.
It is important to note that a portion of Settlement Fund and Interchange Fund will be set aside to cover legal fees. The ‘Class Counsel’ can seek up to $40M and 10% of settlement funds to cover their compensation and expenses. Additionally, if they complete further work for administering the settlement, distributing funds, or working with appeals, the ‘Class Counsel’ may seek reimbursement at their normal hourly rates and will also seek out of pocket expenses and service awards up to $250,000.
The legal fees could end up consuming roughly $1B of the settlement amount before any cash disbursements are made to merchants. In the end, a payout of maybe as little as $4.5 billion to millions and millions of individual merchants is rather insignificant in terms of the long term impact of an interchange system that continues to increase the cost of every single payment card transaction. Again, long-term relief is absent from this settlement.
Redbridge provides clients with payments industry insight, expertise, and education when it comes to changes pertaining to their payment card and treasury environment. Our commentary and recommendations are provided based on an overall business evaluation and are not intended to be construed as legal advice.