Retailers debate whether card swipe fee settlement is fair
Clint Engel -- Casual Living, December 21, 2012
Some furniture retailers And the national Home Furnishings Associaton (NHFA) are joining a growing chorus of retail voices urging fellow retailers to say "no" to the recent multibillion-dollar settlement over credit card swiping fees.
Under the antitrust litigation settlement reached in July, Visa, MasterCard and several large banks agreed to pay more than $6 billion to end long running lawsuits alleging the companies conspired to inflate interchange or swipe fees.
The agreement was initially touted as a victory for retailers as the banks and credit card companies agreed to make the payment, temporarily lower the swiping fees and clear the way for retailers to charge more to customers who pay with plastic by adding a surcharge.
But the deal has since come under fire, partly for protecting the credit card companies from future lawsuits over the issue.
Retailers also are complaining that the payment doesn't come anywhere close to making up for alleged overcharging, and say there are too many strings attached to keep retailers from adding surcharges on purchases made with a credit card.
"It sounds like a lot of money, but it really isn't when you peel back the onion," said Michael Ray, chief financial officer for Mulberry, Fla.-based Badcock Home Furniture & more.
Card networks and banks have agreed to pay about $6.6 billion in addition to cutting swipe fee rates by 10 basis points for eight months, a move valued at about $1.2 billion for all merchants. But Ray said the case involves interchange overcharges that merchants suffered for years, worth well over the nearly $8 billion they'd receive.
"We're looking at getting pennies on a dollar here," he said. "The number sounds humongous, but when you put it in the right perspective, it's a pittance."
And while the settlement would allow retailers to add a surcharge, there are a lot of rules on how to do it. But the biggest sticking point may be a covenant in the settlement that releases the card companies from being sued later for anything that has transpired in the past or anything in the future related to this issue.
Ray said Badcock wouldn't support the settlement as it stands. The NHFA, with about 1,550 company members with some 8,000 stores, also is leaning against it, though few members have called to inquire or complain about it, said Steve DeHaan, NHFA executive VP.
In September, several organizations that represent merchants, including the National Retail Federation, sent a letter to House and Senate leaders voicing their opposition to the 113-page settlement.
"The comments we're getting from our members, by and large, have not been supportive of this deal," said Mallory Duncan, NRF senior VP and general counsel. "They don't think it's sufficient or fair."
There are some new tools for merchants to use, he said, but they don't really affect what credit card companies do in the future, so swipe fees could continue to rise.
"The key issue is going to be changing the whole way the system works, so there are competitive forces at play that counteract the tendency of the banks and Visa and MasterCard to keep increasing interchange rates," said Michael Schumann, co-owner, Traditions Classic Home Furnishings, one of the original plaintiff s in the card swiping suit and the class action.