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Alexa Boschini

Target, Macy's, JC Penney sue Visa, Mastercard over swipe fees

NRF opposes proposed settlement, 19 large U.S. retailers opt out

WASHINGTON, D.C. - Target, Macy's and JC Penney are among a group of retailers that filed a lawsuit Thursday against Visa and Mastercard.

The lawsuit comes on the heels of the National Retail Federation and a group of 19 large U.S. retailers announcing their rejection of a proposed $7.25 billion settlement of a federal antitrust lawsuit over credit card swipe fees charged by Visa and Mastercard.

The initial suit was filed in 2005 by 19 trade associations and retail companies. When a settlement was proposed last summer, it was rejected by a majority of the retailers and all six trade organizations.

The court has set a May 28 deadline for retailers who oppose the settlement to opt out of their share of the $7.25 billion and restrictions on future legal action, to reject proposed injunctive relief, or both. Retailers who do not opt out by May 28 will not be able to pursue future legal action over the swipe fees per the terms of the settlement, but will be eligible for a share of the monetary compensation.

But the $7.25 figure "amounts to less than three months' worth of swipe fee charges, and the small retailers hit hardest by the fees would give up their rights for as little as a few hundred dollars," the NRF said.

Kohl's Corp. and TJX Cos are also named as plaintiffs in Thursday's lawsuit, which was filed in U.S. District Court in Manhattan.

The NRF announced Tuesday it is formally opposing the proposed settlement and urged retailers to "carefully consider their own decisions" before May 28.

"The proposed settlement does nothing to bring swipe fees under control and would give Visa and Mastercard a legal blessing to continue their abuse of merchants and consumers indefinitely," NRF Senior Vice President and General Counsel Mallory Duncan said in a statement. "No settlement at all would be better than this one-sided ‘agreement' written by the card companies for the card companies that would tie retailers' hands for decades to come."

According to a press release, the NRF opposes the settlement "because it fails to reform the price-fixing system under which Visa and Mastercard set the schedule of swipe fees followed by the thousands of banks that issue their credit cards, or to introduce transparency that would lead to competition to lower the fees. Rather than lowering the fees, the card companies have proposed that the fees be passed along to consumers in the form of a surcharge, even though most major retailers have rejected surcharges as the opposite of what they have sought during the years-long fight over swipe fees."

The NRF is not a party to the lawsuit, but has supported opposition to the settlement because "NRF member companies would be dragged into its terms as part of the class action," the organization said.

Also on Tuesday, 19 U.S. retailers including Walmart, Lowe's, Costco, Crate & Barrel and Ikea announced they are opposing and opting out of the settlement. According to a press release, the retailers will consider pursuing additional legal action against Visa and Mastercard.

"If this settlement is approved, it would allow credit card companies and big banks to perpetuate an unfair and broken system that costs all consumers, including those who don't even have a credit or debit card," Mike Cook, senior vice president of finance and assistant treasurer for Walmart, said in the release.

Averaging about 2%, swipe fees are a percentage of the transaction taken by banks each time a consumer swipes a credit card to pay for a purchase. The NRF estimates that swipe fees have tripled in the past decade and total about $30 billion a year nationwide.

Visa, Mastercard and the Electronic Payments Coalition, a payment card industry trade group, have said they are confident the settlement will receive final approval.

The proposal received preliminary approval from U.S. District Court Judge John Gleeson of Brooklyn, N.Y., in November. The hearing for final approval is slated to take place in September.

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