A long-running lawsuit between merchants and credit card companies ended last month in a $7.3 billion settlement. While some retailers see the settlement as a victory for small businesses, others say the wording of the agreement is too broad to do merchants any real good.
The lawsuit, which was initially filed in 2005, concerns the “swipe fees” that credit card companies charge retailers whenever a customer uses a debit or credit card. The group of merchants who filed the suit against Visa, MasterCard and some banks, accused the credit card companies of conspiring to fix swipe fees in order to eliminate competition.
Swipe fees, which average about 2 percent of each transaction, have become an increasingly significant part of a merchant’s bottom line, costing stores a total of about $30 billion per year, according to the National Retail Federation.
The settlement gives merchants limited freedom to apply a surcharge to customers paying by credit card. However, the wording of the agreement is fraught with complications and exceptions that make it nearly impossible for some merchants, like those who accept American Express, to charge more for the use of plastic than for cash or checks.
Many merchants and retail advocates refused to sign off on the deal because they feel it offers too little and makes it harder to initiate legal action against the credit card companies in the future.
However, some small business owners see it as a step in the right direction. Part of the agreement was that credit card companies would reduce swipe fees for eight months, a temporary reprieve valued at $1.2 billion.
The agreement between Visa, MasterCard and merchants is being called the largest antitrust settlement in history. The cost of swipe fees on small businesses has increased exponentially in recent years as credit card companies have piled on incentives and rewards for customers using their credit cards.
D’innocenzio, Anne and Pallavi Gogoi. “Visa, MasterCard Settlement: Credit Card Companies Agree To Pay $6 billion Over Fee Fixing Claims.” Huffingtonpost.com. July 13, 2012. http://www.huffingtonpost.com/2012/07/14/visa-mastercard-settlement_n_1673245.html
Mandelbaum, Robb. “Visa and MasterCard Settle Lawsuit, but Merchants Aren’t Celebrating. NYTimes.com. Aug. 8, 2012. http://www.nytimes.com/2012/08/09/business/smallbusiness/visa-and-mastercard-settle-lawsuit-but-merchants-arent-happy.html?pagewanted=1&_r=2&ref=smallbusiness