Ed's Blog

Today, a panel of the U.S. Court of Appeals for the Second Circuit (opinion,pdf) threw out a preliminary $7.25 billion settlement between Visa and Mastercard and any merchant accepting credit cards (including U.S. PIRG), ruling that despite that seemingly massive payment for past practices that the settlement gave inadequate relief to merchants going forward, as it essentially immunized the networks for any future illegal conduct while providing mostly illusory benefits (Bloomberg story). Since we accept credit cards from our members, we, joined by Consumer Reports, had formally objected to the settlement as consumer advocates who also happened to be merchant class members (most merchant associations also objected).

The court also said (although it expressly "did not impugn the motives or acts" of the merchant attorneys) that perhaps "the potential of gigantic fees," in this case $544 million, a portion of the $7.25 billion penalty for past misconduct,  resulted in "inadequate" representation for all merchants accepting cards in the future. In particular, the court highlighted two flaws in the relief that were highlighted in our objection.

  • First, the court noted that the preliminary settlement's major relief was elimination of the networks' sweeping ban on credit card surcharging; but then the court noted, however, that: "The incremental value and utility of this relief is limited, however, because many states, including New York, California, and Texas, prohibit surcharging as a matter of state law."
  • Second, the court explained that the settlement's sweeping "releases" from lawsuits for future misconduct "in perpetuity" were unfair to the future sub-class. The court explained that the releases extended to conduct related to "imposition of default interchange fees." These unfair swipe fees, as we have previously explained, harm all consumers at the store and the pump, including cash customers. Also importantly, our objection argued, and the court agreed, that the releases from future liability would even extend to illegal conduct on current or even any future payment platforms.

We look forward to hearing the next steps in this case to rein in the uncompetitive credit card marketplace but are gratified that the court agreed with us that Visa and Mastercard and the big banks that still largely dominate them, although they are now publicly traded, should not be allowed to pay a go-away fee, even a large one of $7.25 billion, for the unfair anti-competitive privilege of being able to engage in future conduct that harms merchants and consumers, basically forever.

We have supported challenges to the "no surcharge laws" of several states, including New York's. Although the federal Truth In Lending Act explicitly allows discounts for cash, New York's law, for example, criminalizes merchants that surcharge for credit, even though the practice is simply an inverse of the legal "discount." Recently, after a successful PIRG-backed challenge to the New York no-surcharge law was overturned on appeal, we filed a brief to the Supreme Court (a cert. petition) urging its review in Expression Hair Design (a small merchant) vs. Schneiderman (the New York Attorney General).

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