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The Interchange Lawsuit and Options for Merchants

Consumer electronics merchants across the nation are currently part of a proposed antitrust class action lawsuit by merchants against Visa, MasterCard and their member banks. With the case now at a critical juncture, merchants of all sizes should consider the relative merits of proceeding as part of a class action and other options for protecting their legal rights.

In the so-called “interchange” case, 20 merchants ranging from grocery stores to opticians allege that the fees they pay for accepting debit and credit cards amount to illegal price-fixing. The merchants have now asked that the case proceed as a class action. If the judge overseeing the case grants the request, then each class member — every merchant that has accepted a Visa- or MasterCard-branded card payment in the U.S. in recent years — will have to consider which of three key strategies to pursue.

What is the case about?

The case mainly involves the interchange fees that merchants pay to issuing banks on each card transaction that they accept. They generally vary from 1.5 percent to 2 percent of the price for each credit card purchase and are approximately 0.75 percent for an average debit card purchase. Given Visa’s and MasterCard’s dominance, merchants have virtually no choice but to accept their cards and their high interchange fees. The merchants rely on court rulings in a prior successful antitrust case brought against Visa and MasterCard by our firm: the class action led by Walmart over the tying of credit and debit card acceptance (the “Visa Check/MasterMoney” case).
The Magistrate Judge presiding over the request could issue a recommendation on the class certification motion to the District Judge at any time. If a class is certified, then the parties will either try the class’s case (assuming it is not summarily dismissed before trial) or settle — a far more likely outcome. Against this backdrop, merchants have the following choices.
1. Wait and hope to collect
Merchants could do nothing now, and wait to collect their share of any recovery from a settlement or jury verdict. This would entail only minimal legal fees and completely skip the costs and burdens of discovery. But this approach also leaves the merchant just one option: to take the jury’s verdict or the deal that the parties negotiate in settlement, even if the merchant believes that its claims are worth substantially more than those results. The merchant also could not pursue its own legal theories, hire its own counsel or join the settlement talks and influence their outcome.
2. Wait and object to the likely settlement
A second option is to do nothing now but consider objecting to the proposed settlement later if it does not fairly redress the damages incurred by the merchant and the other class members or otherwise enjoin anticompetitive practices. But class settlements negotiated at arms’ length are presumed fair, and judges often favor settlement to continued litigation. So objecting to a settlement, while perhaps, will not necessarily affect the terms of a proposed class settlement.
3. Opt out completely
Merchants can also opt out of the class action altogether and bring their own lawsuits. If they do not affirmatively opt out quickly after the class is certified (often within 60 days), they will be bound by any settlement that the named plaintiffs reach — including any legal release of the defendants that the named plaintiffs and the court deem reasonable.
Opting out allows the merchant to seize control of its own case rather than rely on others — in some cases its competitors — to protect its interests. It thus makes it possible to achieve a larger financial recovery than the merchant would as a class member. In the landmark Walmart class action, for example, The Home Depot and Best Buy opted out and leveraged their individual actions to settle separately with Visa and MasterCard.
Remaining a passive class member costs little but consigns electronics merchants to accept whatever result the named plaintiffs secure. Objecting to a settlement is a low-cost option but does not guarantee that the settlement will be changed to the objector’s liking. Opting out, while the more expensive course, is the one that best increases the chance of a higher recovery. The latter two options can be wise strategies for merchants intent on influencing the interchange case’s outcome. Given this issue’s importance to their bottom line, merchants should carefully consider their options as the case proceeds.

Adam Nyhan is associated with Constantine Cannon, which represented the merchant class in the In re Visa Check/MasterMoney Antitrust Litigation and in 2003 recovered $3.05 billion in damages and reformed the defendants’ business practices for a court-estimated $25 billion to $87 billion in additional relief.