Heartland and Visa Reach $60 Million Breach-Settlement Agreement

Heartland Payment Systems Inc. and Visa Inc. on Jan. 8 announced they have reached a settlement agreement in which Heartland will pay up to $60 million to Visa Inc. card issuers for damages sustained from the 2008 breach into the payment processor’s network.

Visa in the next few days will send affected issuers settlement offers. Issuers must decide by Jan. 29 whether or not to accept the offers, Heartland says.

Heartland disclosed on Jan. 20, 2009, (see story), that its payment network was attacked and an undisclosed amount of transaction data was stolen. Albert Gonzalez, a Miami man, last month pleaded guilty to charges he breached the payment networks of Heartland Payment Systems Inc., Hannaford Bros. Co., 7-Eleven Inc. and two unnamed retailers (see story).

Issuers participating in the settlement offer must also release their legal claims against Heartland, its sponsoring banks and Visa, the agreement states.

Heartland says 80% of eligible Visa issuers must accept the settlement offer for it to be effective. If this condition is met, Heartland says issuers will receive their payments by Feb. 25

The Heartland settlement is the largest publicly-known settlement involving Visa issuers. The TJX Cos. in 2007 agreed to pay up to $40.9 million to Visa issuers for their costs related to a 2007 breach of the company’s network.

Analysts see Heartland’s settlement with Visa as positive.

“It’s good to have Visa out of the way, given that it’s the biggest card brand,” David Koning, senior research analyst at Milwaukee-based Robert W. Baird & Co., tells PaymentsSource. Koning says reaching similar settlements with MasterCard Worldwide and Discover Financial Services “gets closer,” Heartland settled with American Express Co. for $3.6 million last month (see story) . Also in December, Heartland reached a $2.4 million settlement agreement with cardholders (see story).

“This also shows that Heartland is able to get all this behind them,” Koning says. While the breach raised questions among investors, it was not enough to dissuade them from holding onto Heartland stock, he says. Koning says investors are “comfortable” with Heartland’s management team, and “longer term, we expect the company to gain a pretty good growth trajectory.” The Visa settlement amount is close to what analyst Robert Dodd with Memphis, Tenn.-based Morgan Keegan & Co. expected. “It’s in line with what I thought,” Dodd tells PaymentsSource. Dodd says Heartland’s overall settlement costs could be about $100 million. He predicts the MasterCard settlement could be $30 million. Dodd says Heartland likely will not suffer from merchant attrition because of the settlements.

“Their merchants haven’t been paying that much attention” to the breach fallout because it has mostly affected issuers, Dodd says. He speculates that Heartland’s small- to mid-size merchants, which Dodd says have an annual average card volume of $350,000, have too many other business-related matters to contend with.

“Heartland is pretty well set up to weather this long term,” he says.

Neither Heartland nor Visa would comment beyond a jointly-issued press release.