Headlines from Bloomberg to the Wall Street Journal announced that longstanding litigation between merchants and the credit card industry is near conclusion with a whopping $6.5 billion on the table. Defendants include Mastercard, Visa and top-tier issuers including Chase, Citi, and Bank of America
The parties on Tuesday informed the U.S. District Court for the Eastern District of New York that they settled, the people said.
They intend to draw up a draft of the deal by mid-July and to submit a final agreement to the court by mid-August, the people added.
The case has been a highly contentious one for merchants and has raised questions about the longevity of the credit card fee model.
At issue are the card swipe or interchange fees that card networks set and that merchants pay to banks when consumers use their cards to shop. Merchants allege that the networks and banks have colluded to inflate those fees.
$6.5 billion is surely a ton of money, but most of it was set aside in advance.
Around $5 billion of the original settlement amount remained in escrow, according to people familiar with the matter, and would be distributed as part of the new settlement if it is approved by the court.
Actions against the card industry are still open with two large retailers:
Several large merchants, including Home Depot and Amazon.com Inc., have filed separate lawsuits over the fees. Among the terms that the merchants are challenging are the card networks’ “honor all cards” requirement.
As for the $6.5 billion, it will get split by merchants.
If the distribution goes as it did in similar litigation in Australia, merchants will enjoy the benefit, but consumers will see little benefit. What is next? Interchange and rewards?
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group