The great swipe fee fiasco doesn’t seem to be winding down. Earlier this year, a settlement was awarded to retailers who have been unfairly charged interchange fees (swipe fees). The retailers’ accusation, which was first introduced in court in 2005, is that Visa, MasterCard and some other major banks participated in rate-fixing and non-competitive practice. The retailers won, but many of them believe that the resulting settlement, which benefited merchants, was hardly a win.
According to the settlement, credit card companies must pay $7.25 billion to some 7 million retailers. It sounds like a windfall, but in reality, it doesn’t come close to the actual damages. Before legal fees it only amounts to about $1,000 per retailer.
Because of this, some ten trade groups and merchants, including Home Depot, appealed the settlement. Just last week, that same group requested that the Second Circuit Court of Appeals put their case on the fast track. The request, however, was readily denied.
The Card Companies’ Lack of Transparency
The initial damages awarded in court are a far cry from what retailers have paid the credit card companies in fees over the years. As much as 4% of each transaction has been taken by credit card companies in swipe fees. What’s worse, retailers have been frustrated with a lack of clarity from the credit card companies. “When we accept a card for payment, we don’t know if it is a relatively inexpensive one or just the opposite,” wrote Ted Burke, National Restaurant Association director, in the San Francisco Chronicle recently. “And when the swipe fee bill comes, it is impossible to know whether the fees are accurate. The card companies do not publish a rate sheet, and I have no way of tracking which card was used by which customer even if they did.”
These problems demand answers and restitution. However, it’s clear to everyone that the settlement is slanted strongly in favor of the credit card companies. That’s part of the reason that retailers say they have appealed the ruling. The other reason is because if they accept the settlement, there is a loophole that restricts the retailers for new legal claims regarding swipe fees in the future.
Some merchants, however, are happy with the settlement and are ready to see it follow its due course. They don’t want the appeal to go through. That might have something to do with the fact that the major credit card companies have agreed to lower their swipe fees for eight months following the settlement. However, after that, it’s possible that they will return to their old ways, and then there will be little or nothing retailers can do about it.