A federal judge granted preliminary approval Friday to the proposed settlement of a massive lawsuit brought by retailers against Visa (NYSE: V) MasterCard (MA) and banks that issue their cards.
The ruling by U.S. District Judge John Gleeson, which was widely expected, was quickly hailed by the banks and card networks as another step toward resolving the long-running fight over interchange fees.
"We view Judge Gleeson’s ruling today as further indication that this historic settlement is a fair and balanced resolution to the epic swipe fee battle,” Trish Wexler, spokeswoman for the Electronic Payments Coalition, which represents financial institutions that are defendants in the case, said in a statement.
In the suit, which dates to 2005, retailers argued that the card networks thwarted competition, resulting in higher interchange fees. Under the proposed deal, merchants would receive $7.25 billion and the long-denied ability to impose surcharges on credit card transactions, though certain states bar such fees. The financial institutions would retain the right to set swipe fees and also get a broad release from future liability.
The proposed deal is being touted as potentially the largest class-action settlement in U.S. history, but it has drawn fire from many of the nation’s large merchants, including Wal-Mart and The Home Depot, in addition to several large retail trade groups.
The dissenters argue that the settlement may be a good deal for the law firm that brought the case, but it would not be beneficial to millions of merchants nationwide that accept Visa and MasterCard. Specifically, they object to the provision in the settlement that would allow payment networks and banks to retain control over the pricing of credit card interchange fees.
The National Retail Federation, which is leading the charge against the deal, said in a statement Friday that it disagrees with the judge’s ruling and plans to explore its legal options.
“We do not believe the proposal meets the legal tests required to meet even preliminary approval,” Mallory Duncan, senior vice president and general counsel of the National Retail Federation, said in a statement. “Retailers, their customers and competition would suffer irreparable harm if this one-sided deal is allowed to move forward.”
The proposed settlement gives merchants the right to opt out of certain provisions. If 25% of retailers nationwide, based on the volume of their sales, opt out, the financial institutions would have the opportunity to scuttle the deal.
The judge’s ruling, which followed oral arguments Friday morning from both supporters and opponents of the settlement, paves the way for notices to be sent to millions of merchants notifying them of their eligibility.
Retailers will also have a second opportunity to air their objections to the deal before the judge decides whether to give final approval. Gleeson is expected to scrutinize the proposed deal more closely during this second phase.
In the meantime, certain provisions of the proposed settlement are scheduled to take effect sooner. Starting in 60 days, merchants will be allowed to impose surcharges on credit card transactions, according to the Electronic Payments Coalition.