Visa, MasterCard File Suit As Credit Card Settlement Spawns More Litigation

World War I was supposed to be the war that ended all wars. It didn’t, of course. And the settlement announced last July that was supposed to end lawsuits over bank card interchange and related network rules not only is failing to end litigation between merchants and the card networks, it’s actually spawning even more.

Just before the Memorial Day weekend, Visa Inc., MasterCard Inc. and nine banks filed a lawsuit in U.S. District Court in Brooklyn, N.Y. seeking a declaration that their conduct with respect to interchange and network rules did not violate federal antitrust laws. The defendants are 10 retail trade groups and merchants that were named plaintiffs in the original litigation that dates back to 2005 but that opted out or declared their intentions to opt out of the damages part of the $7.25 billion settlement.

The networks and banks filed their lawsuit just days after a group of retailers led by Target Corp. sued Visa and MasterCard over interchange in a separate federal court across the East River in Manhattan. The plaintiffs in the Manhattan suit were not named plaintiffs in the original litigation, though they could have received damages by virtue of being members of the class of merchants that accepted Visa and MasterCard cards from 2004 to 2012.

Meanwhile, Tuesday is the deadline the Brooklyn court set for millions of those class merchants to formally opt out of the damages part of the pending settlement, object to it, or both. The court will interpret failure to opt out or object as acceptance of the settlement’s terms.

Merchants and trade groups opposed to the settlement have complained since last summer that it would leave Visa and MasterCard free to continue setting interchange rates at allegedly high levels.

Following through on its promise last week to formally oppose the settlement, the National Retail Federation trade group this morning, joined by 19 merchants, filed a 188-page brief asking U.S. District Judge John Gleeson to reject the settlement, calling it “evil” and a “surrender.”

“This is an empty settlement,” NRF senior vice president and general counsel Mallory Duncan said in a statement. “It fails to address the price-fixing that harms merchants and their customers, it takes away retailers’ legal rights to ever try again, and it offers virtually nothing in return. It should be tossed out of court as the failure that it is.”

Gleeson last November approved the settlement on a preliminary basis but has said that final approval must meet a higher standard. He’s scheduled a so-called fairness hearing for Sept. 12. The settlement would give class merchants just over $6 billion from a Visa/MasterCard fund and about $1.2 billion through temporary credit card interchange cuts, plus greater freedom from some network rules, notably the ban on credit card surcharges.

Visa and MasterCard say in their lawsuit that the settlement will provide merchants with what reportedly is the nation’s largest-ever private damages recovery and requires both companies “to each make significant changes” in some of their rules for merchants.

“A declaration in plaintiffs’ favor against the defendants is necessary to prevent the continuation of endless, wasteful litigation between defendants and plaintiffs,” the complaint says. The suit recounts the history of merchant-network fights over interchange, including the big debit card case that was settled a decade ago and featured many of the same allegations flying back and forth today.

Attorney Anita Boomstein says “there’s nothing new” in the Visa-MasterCard suit. “What they have done is repackage all of the arguments they have made,” says Boomstein, a partner at Hughes Hubbard & Reed LLP in New York who has advised merchants about the litigation. “I think it’s a clever way to try and change the focus, so that instead of being on the defensive they’re on the offensive.”