But no one could plausibly argue that the retailers got the short end of the stick. The credit card networks, Visa Inc. and MasterCard Inc., and card issuing banks have agreed to pay $6 billion in damages to the class members, who would also receive an additional $1.2 billion in reduced interchange rates. And as part of the settlement, retailers are now able to use the clout of buyer groups and to surcharge consumers who pay with a credit card – powers that will likely be used by retailers as leverage to negotiate lower interchange rates.
As for the defendants, they got an end to the constant litigation. In other words, the settlement ends all pending lawsuits by retailers, and removes any need for future litigation against the credit card networks over interchange rates. The credit card networks and the plaintiffs, many small-business retailers, want this episode behind them and the differences over interchange rates resolved. That’s exactly what this settlement does.
Enter the retail trade groups, which include the National Association of Convenience Stores, the National Grocers Association, the National Retail Federation, plus Target and Wal-Mart. Since the deal was reached in July, this coalition of lobbyists and big-box stores has urged their fellow retailers to object to the settlement.
There’s just one problem: The retailers and class counsel that negotiated and agreed to the settlement happen to like it just as it is. Not only do they get a hefty payout, but they also see their newfound powers as a way to balance the scales on their interchange rates.
As a spokesperson for CHS Inc., which operates more than 1,400 gasoline stations under the Cenex banner and is one of the parties that negotiated and agreed to the settlement, said, “This agreement represents a significant step in the right direction and provides some important relief for our merchants.”
So what explains the opposition to the settlement? For the retail trade groups it remains a question of money, but not in the way you would think. The settlement resolves the disagreement over interchange rates, which doesn’t sit well with lobbyists and the trial lawyers. After all, if there’s nothing to “fix,” there’s no reason to legislate or litigate.
Ever since the passage of the so-called Durbin Amendment, which imposed government-mandated price controls on debit card interchange fees, the retail associations have been seeking a similar cap to credit card fees. Never mind that the Durbin Amendment has transferred an estimated $8 billion in revenues from banks to retailers, forcing banks to impose costs on consumers through higher checking fees
Now that the settlement has been made public, many in Congress are hesitant to pursue legislative means if the judge grants preliminary approval. Unless, of course, the trade groups can convince the judge – despite the facts – that support for the settlement is weak in the merchant community. If that happens, look for lobbyists to reignite their campaign for a Durbin Amendment Part II that will regulate credit transaction fees – even though consumers saw no benefit from the original, given that merchants pocketed $8 billion in windfall profits.
The big-box stores would benefit from a cap on transaction fees, but their opposition to the settlement may have more to do with competitive advantage. In August a group of the nation’s largest merchants, including Wal-Mart, 7-11, and Best Buy, announced the formation of a new mobile-payments network known as the Merchant Customer Exchange, which aims to establish a new payment system outside the traditional credit-card infrastructure.
There’s nothing wrong with having competing systems. The big-box retailers and others are free to build whatever payment network they like, but they should not be allowed to get away with trying to scuttle the settlement and keep Visa and MasterCard embroiled in endless litigation just to gain a competitive advantage.
Regardless, the negotiated settlement serves the interests of retailers and consumers, who want to preserve their choices of payment at the point of sale. Those still waiting to see the benefits of the Durbin Amendment should be wary of calls for a legislative alternative to the settlement. The electronics payments infrastructure is safe, efficient and reliable precisely because free-market mechanisms keep costs low and spur innovation. The retailers that agreed to the settlement shouldn’t be cowed by the power and money of the lobbyists, trial lawyers, and big-box stores, especially when those forces are being used to stifle competition.
Oxman is the chief executive officer of the Electronic Transactions Association, an international trade association representing more than 500 companies worldwide. Follow ETA on Twitter @ElecTranAssoc.