V Visa Inc

By AnnaMaria Andriotis 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 29, 2018).

Visa Inc. and Mastercard Inc. are close to settling a long-running antitrust lawsuit with merchants over the fees they pay when they accept card payments, according to people familiar with the matter.

Under the settlement, Visa, Mastercard and a number of banks that issue debit and credit cards including JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. would pay the merchants around $6.5 billion, some of the people said. It isn't clear how the payment would be split up among the card networks and the issuing banks.

The parties on Tuesday informed the U.S. District Court for the Eastern District of New York that they reached a settlement, the people said. They intend to draw up a draft of the deal by mid-July and to submit a final agreement to the court by mid-August, the people added.

The case has been a highly contentious one for merchants and has raised questions about the longevity of the credit-card fee model. At issue are the card-swipe or interchange fees that card networks set and that merchants pay to banks when consumers use their cards to shop. Merchants allege that the networks and banks have colluded to inflate those fees.

They allege that the card networks set fees and card acceptance rules that benefit the banks. They say Visa and Mastercard do this in several ways, including by setting the fees that banks then charge the merchants. Instead, merchants want to be able to negotiate the fees directly with the banks.

Card industry executives say that card networks and issuers provide a payments system without which merchant sales would slow significantly.

Merchants brought the class-action suit against Visa, Mastercard and the largest U.S. card-issuing banks in 2005. But many large merchants opted out of the original settlement of $7.25 billion that was reached in 2012 largely due to terms that would have barred them from filing lawsuits against the networks over future swipe-fee increases. An appeals court invalidated that settlement on the grounds that merchants weren't adequately represented. The Supreme Court last year declined to hear the case, shifting it back to the district court.

Around $5 billion of the original settlement amount remained in escrow, according to people familiar with the matter, and would be distributed as part of the new settlement if it is approved by the court.

Merchants that agree to the settlement will be restricted for a number of years from suing the card networks over the same card-swipe-fee claims the suit addressed, according to people familiar with the matter. Merchants who disagree with the terms of the settlement will be able to opt out and proceed with their own lawsuits against the networks, the people said.

Several large merchants, including Home Depot Inc. and Amazon.com Inc., have filed separate lawsuits over the fees. Among the terms that the merchants are challenging are the card networks' "honor all cards" requirement. That rule prohibits merchants from selecting between a network's cards; instead merchants that accept one Visa credit card, for example, must accept all Visa credit cards. Swipe fees vary significantly between the networks' cards and are higher on cards with generous rewards programs.

Credit-card swipe fees typically are comprised of a flat fee plus a percentage of the dollar amount of a cardholder's purchase. That percentage can range from around 1% to roughly 3%.

Merchants were dealt a big loss this week when the Supreme Court backed American Express Co.'s policy of preventing merchants that accept AmEx cards from offering shoppers discounts or other incentives to use cheaper cards. The court's decision is a setback for the merchants' broader ambitions to take on credit card swipe fees.

Merchants paid card issuers $43.4 billion in Visa and Mastercard credit card interchange fees in 2017, up from $25.9 billion in 2012, according to the Nilson Report. The increase is largely due to the ongoing shift in consumers using cards to make more of their purchases and the introduction of more high-cost cards with generous rewards programs.

Pricing on debit-card swipe fees was capped by legislation as part of the 2010 Dodd-Frank Act for institutions with $10 billion or more in assets. Average debit-card interchange fees per transaction dropped in 2012, the year after the new pricing went into effect, and have on average remained steady since then, according to Federal Reserve data.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com

(END) Dow Jones Newswires

June 29, 2018 02:47 ET (06:47 GMT)

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