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Major retailers slam 'defects' in $7.25B credit card fees deal

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By Star Tribune
Friday, Dec. 7, 2012, 12:01 a.m.
 

WASHINGTON — After helping negotiate the largest antitrust settlement in history against credit card companies and banks, Minneapolis lawyer K. Craig Wildfang might reasonably have expected a standing ovation from the retail industry.

So far, much of what he's received are Bronx cheers.

Many of the country's biggest retailers, who were not parties to the case, want the $7.25 billion deal dead. Mark Williams, president of financial services at Best Buy, said the settlement “does almost nothing to address why U.S. consumers and merchants continue to pay higher (credit card) costs than nearly every other developed country.”

Target Corp. believes the settlement has “serious substantive and legal defects” that “perpetuate a broken system” of uncontrolled credit card fees that costs Target hundreds of millions of dollars each year, said spokeswoman Jenna Reck.

Experts expect major retailers and trade associations to fight all the way to the U.S. Supreme Court if necessary to kill or materially change the settlement. Opponents say it leaves credit card companies with too few limits on fee increases and prohibits future lawsuits.

Georgetown University law professor Adam Levitin, a consumer finance expert, speculated that credit card fees could become a flash point in the U.S. House and Senate, the way debit card fees did in 2011 when Congress voted to restrict them in an amendment to financial regulatory reform.

Levitin thinks judicial approval of the current settlement would up the legislative pressure to pass a better long-term solution.

In November, a majority of the merchants and trade associations that brought the lawsuit against Visa, MasterCard and several banks seven years ago announced plans for a new legal filing. This one will ask a federal appeals court to throw out the settlement, a motion granted preliminary approval by U.S. District Judge John Gleeson on Nov. 9.

Wildfang, a partner at Minneapolis-based Robins, Kaplan, Miller & Ciresi, insists he got his clients the best possible deal.

“We eliminated rules that restrained competition,” Wildfang said. “We've gone as far as we can go in getting relief for merchants. This is the largest antitrust settlement ever by a factor of two.”

While he believes he's struck a good deal, Wildfang also believes political intervention is the ultimate motive of his most-vocal critics. “This,” he said, “is all bound up in Washington politics.”

The financial stakes could not be higher for everyone involved, including consumers.

In 1993, credit cards paid for $650 billion in goods and services in roughly 6 billion transactions, according to the Government Accountability Office, or GAO. By 2007, credit card payments mushroomed to more than $1.9 trillion on 27 billion transactions. One to 3 percent of the value of each transaction went to credit card fees, the GAO said.

Visa and MasterCard accounted for 71 percent of credit card purchasers in 2008, the GAO reported. From 1991 to 2009, MasterCard raised its standard credit card fees by 22 percent, the GAO said. From 1995 to 2009, Visa raised its standard fee by 23 percent.

With tens of billions of dollars in credit card fees paid each year, the terms of the antitrust settlement are crucial, Levitin said. His 24-page analysis of the settlement concluded that it was “a bad deal for merchant plaintiffs and the public at large.”

“If you're Joe Six-Pack, you should worry because (the settlement) allows MasterCard, Visa and big banks to impose a hidden tax on everything,” Levitin said.

Not everyone feels that way. Visa and MasterCard have both expressed satisfaction with the settlement, even though it would force them to pay billions in damages and temporarily lower their fees.

When the settlement came to light in July, Visa Chairman and CEO Joseph Saunders said he did not expect the penalties to affect earnings estimates issued to Wall Street.

A Minnesota business that originally sued — CHS Inc., a giant agricultural cooperative based in Inver Grove Heights — “supports the settlement agreement and believes that it is a fair and equitable resolution of the case,” corporate communications director Lani Jordan said.

Wildfang challenged Levitin's analysis, saying the professor is “not well-informed” on antitrust issues. But even Wildfang expects the retail industry's pushback to continue.

 

 
 


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