The long-running dispute between the retail industry and the payment card industry over fees for accepting electronic payments is finally over. A recent litigation settlement ends a fight about money and relieves Congress of the task of sorting through a wide range of arcane commercial customs and practices. Perhaps most importantly, the settlement also provides a model for resolving future disputes, particularly between determined and well-funded adversaries.
A little background will help illustrate this point. The credit card was originally a retailer invention designed for use with a particular merchant. To this day, any business can issue cards under state law or through a federally chartered credit card bank. Over time, banks started to issue cards and eventually developed national networks. As these networks became ubiquitous, retailers gradually sold off their costly credit card portfolios, and their attendant risks, to banks.
The national credit card systems are interdependent, interconnected cost-sharing arrangements funded by three revenue streams: interest and card fees paid by consumers and interchange fees paid by merchants. Retailers enjoy all the benefits of the system, especially how it increases sales and shifts repayment risks, but they became unhappy with their share of the costs, rules such as "honor all cards" and prohibitions on checkout fees. Over the last three decades, they challenged the networks and banks three times with antitrust litigation and were unsuccessful on each occasion.
In 2004, another effort known as the "Wal-Mart case" settled, resulting in a $3 billion payout and practice changes relating to PIN vs. signature debit. Perhaps encouraged by this, retailers went back the following year for more, commencing one of the largest antitrust class actions in the world, initially covering debit and credit. On the side, they also began a massive lobbying campaign to have Congress impose price controls on interchange fees.
Court battles require tremendous resources and they introduce substantial business uncertainty. Finality is one of the goals of this type of litigation. The judge in the Wal-Mart case also presided over the new lawsuit and appeared determined to implement a process that provided a more comprehensive and lasting solution to this dispute. He succeeded in the specific case, but the larger success was the creation of a template for future large-scale commercial disputes.
There are no shortcuts in such a process and the court system took great pains to ensure all evidence was closely reviewed and the parties and experts were heard. Over seven years, 43 separate cases were consolidated; over 200 attorneys from over 90 law firms participated; 139 parties were named and the potential class was stated as "millions of merchants." All told, merchant plaintiffs reviewed over 50 million pages of documents produced in the litigation and participated in more than 400 depositions.
In the end, the merchants received monetary damages valued at $7.25 billion along with market and competition changes in the form of buying groups and the ability to charge checkout fees to cover card acceptance costs. All parties also agreed the remedies fully redress "any and all antitrust and other competitive issues" and are designed to allow the payment card market to "function competitively in the future, and for the purpose of putting to rest all controversies."
Simply stated, the merchant plaintiffs agreed the settlement resolves all past disputes and establishes a system that will govern the payment system in the future. After a long, thorough and arduous process, nothing remains for Congress, or anyone else, to address.
As in virtually all disputes of this magnitude, some will criticize the settlement based on their own motivations. All signatories, including the merchant class representative, have approved this final and binding agreement. It is time to recognize that through this process, no retailer small or large was barred from directly participating, either through their associations or as a named plaintiff. The process worked and this dispute is over, whatever a few holdouts may say.