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Mallory Duncan: Yes, regulations on 'swipe fees' should be even tougher

Published: Wednesday, July 29 2015 5:52 a.m. MDT

In this May 9, 2012 file photo, a Visa credit card is tendered at opening of the Superdry store in New York's Times Square. (Associated Press) In this May 9, 2012 file photo, a Visa credit card is tendered at opening of the Superdry store in New York's Times Square. (Associated Press)

WASHINGTON — When the settlement of a major lawsuit is announced, it's usually a done deal. Paperwork still needs to be signed and the package has to be approved by a judge, but both parties have come to agreement and are ready to end their dispute.

That's certainly not the case with the highly publicized $7.25 billion "settlement" of a federal antitrust lawsuit over Visa and MasterCard credit card swipe fees.

The lawyers retained by retailers to fight the soaring fees have been fired by their most significant clients, the proposal has been soundly rejected by virtually the entire retail industry and what was portrayed as a settlement is far from settled.

The major plaintiffs — trade associations representing retail groups ranging from convenience stores to restaurants — say their lawyers failed to keep them informed and many have hired new counsel to fight the settlement.

The nation's two largest retailers, Walmart and Target — not parties to the suit but affected if the settlement is approved as a class action — are opposed. And the National Retail Federation, representing retailers from Main Street shops to national chains, has been authorized to go to court to block the deal.

At issue are swipe fees, a hidden charge banks collect each time a Visa or MasterCard is swiped.

Combined credit and debit card swipe fees tripled over the past decade to about $50 billion a year, driving up prices an estimated $427 for the average household. Debit swipe was capped by the Federal Reserve last year, but credit card swipe fees remain unregulated and average about 2 percent of each transaction — amounting to about $30 billion a year or $250 per household.

The lawsuit claims these fees violate federal antitrust law. Rather than competing to lower swipe fees, banks that issue the cards all follow the same schedule of fees set by Visa and MasterCard and refuse to negotiate — no different than if grocers agreed to hike the price of milk.

The suit sought to stop the price fixing and introduce transparency and competition that would lead to lower fees for merchants and consumers. Unfortunately, none of that was accomplished, and there are multiple problems with the settlement.

To start, the price fixing system is left in place. And beyond a vague promise to "recognize" merchant bargaining groups— but no requirement to bargain in good faith — the card companies have agreed to nothing to limit fees going forward.

Without restrictions, the fees could grow indefinitely. Most amazingly, the settlement would bar all future swipe fee lawsuits, even from merchants who do not yet exist.

What would retailers receive in return? The $7.25 billion is touted as a record for an antitrust case. But it represents a refund of less than three months' worth of swipe fees out of the eight years of price fixing alleged by the lawsuit.

The biggest losers, however, are consumers, who could have seen savings like the $18 million a day being saved under debit swipe fee reform.

Swipe fees are taking tens of billions of dollars out of shoppers' pockets at a time when cash-strapped American families can least afford it.

Higher prices mean families are able to buy less food, clothing and school supplies, with a ripple effect impacting every job behind every product on the shelf.

Not only does the settlement fail to bring fees down, one provision even threatens consumers with a credit card surcharge — clearly written by lawyers clueless that retailers brought the suit to lower prices for consumers, not raise them.

This settlement is a missed opportunity to bring about true reform that would benefit both Main Street retailers and their customers. But the fight isn't over - America's retailers will not stand by and allow the public to be betrayed.

Mallory Duncan is senior vice president and general counsel of the National Retail Federation.

Copyright 2015, Deseret News Publishing Company