As a voice for small businesses and their customers, the National Black Chamber of Commerce is pleased to see that after so many years, the very public battle over who should pay for the cost of payments acceptance is finally over. On July 13, the U.S. District Court for the Eastern District of New York announced that a settlement was reached in the long-running legal dispute between retailers, payment networks and nine major credit card issuers over interchange fees and rules.
The parties came together and agreed on a settlement, using a reasoned, measured judicial approach to resolving a complex dispute. Congress designated the courts to resolve complex principles of law and questions of fact in resolving antitrust matters. It was designed to insulate the process from raw political power and to reach conclusions that ultimately benefit consumers.
Giant retailers now have more control than ever in what they pay to accept electronic payments, including the ability to impose a retailer surcharge, or "checkout fee," on their customers. They required that provision as part of the settlement. This is an anti-consumer practice and people should watch for large retailers overcharging them and just say no. It's outrageous that customers should have to pay the retailer extra for the "privilege" of paying them. In fact, this practice is currently illegal in 10 states and will remain in effect in those states. They are: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.
Consumers have not received the savings giant retailers promised in exchange for the $8 billion big business payday from Senator Dick Durbin [D-Ill.] and Congress. Contrary to visions of slashing prices and "discounts for debit" at the register, giant retailers are hoarding their winnings, and consumers are seeing prices continue to rise. In many cases, consumers are paying more for traditional bank products and losing services that were free since many banks have been put in the position of making up lost revenue because of the Durbin amendment to Dodd-Frank.
Under the amendment, when you use your debit, credit or prepaid card at a store, the merchant has to pay an interchange, or "swipe," fee. The interchange fee was supposed to cover the risk of fraud, transactional costs, and other overhead expenses. However, because of the limited negotiating power of merchants, it's now a one-sided proposition and an enormous source of profit for banks.
Moreover, big retailers have seen their profits soar while small businesses are suffering higher and higher costs. Prior to government intervention, all retailers paid an average of approximately 1 percent per debit transaction. But today, "mom and pop" shops selling everyday items, such as a cup of coffee or a turkey sandwich, are paying the much higher price-controlled amount – virtually the same rate as mega-retailers.
And just recently, a couple of giant retailers have now publically objected to the settlement, including Wal-Mart, and feel differently than the millions of merchants who were intimately involved in the extensive negotiations as part of this litigation. I suppose it's possible that Wal-Mart doesn't think the settlement is in their best interest and perhaps they want to try to hold out for more money. But we all know that what Wal-Mart wants isn't always what is in the best interest of the millions of other U.S. merchants, especially smaller retailers.
The class representative plaintiffs, their counsel and the court appointed co-lead class counsel had every opportunity to shape this deal over seven years of litigation and mediation. It appears to me that they ultimately signed on because they felt this was in the best interests of all retailers, large and small alike.
As I see it, this settlement resolves all interchange disputes – both those in the past and on a go-forward basis. As with any settlement of class action litigation, it's a process and several additional steps must occur before the agreement is actually implemented. This settlement is a final and binding agreement on all parties. Those who signed the final agreement are now compelled, through their signatures, to ask for the judge to approve it. And there is nothing to suggest that the judge would reject this agreement, which has been in development for many years. In fact, recent analyst reports by Keefe, Bruyette & Woods and Citi Research find that even if some of the class participants formally opt-out of the agreement, this is extremely unlikely to derail the interchange settlement.
Now that both industries have willingly endorsed this agreement, it shows that no further government intervention is necessary – the case is in fact closed.