Retailers Win 7.25 Billion Lawsuit Against Banks and Credit Cards

Court ruling on whether credit card fees were unfair

Retailers Win Lawsuit Against Major Banks

The largest settlement in U.S. Antitrust history ruled that Visa and MasterCard along with other banks pay a record settlement of 7.25 billion dollars. The ruling was made in the U.S. District Court for the Eastern District of New York.

Which Banks Were the Defendants in this case?
JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Capital One Financial Corp., Barclays Financial Corp., Fifth Third Bancorp, HSBC Financial Corp., Wells Fargo & Co., National City Corp., First National Bank of Omaha, Texas Independent Bancshares Inc., and SunTrust Banks Inc.

A judge needs to approve this settlement from plaintiffs that filed in 2005. If you are thinking good this is what these banks deserve, think again. Unfortunately, this ruling can affect consumers negatively. Retailers through this ruling will now be able to charge customers more for using credit cards than by paying cash or by check. Through this decision, the no-surcharge rule has ended. This means that your gas station, florist, etc. can charge you 2-3% extra for using your credit card instead of cash. It is important to note that this fee can not be charged on debit cards. Retailers will receive settlement money for unfair fees, and now they have the ability to charge their customer fees. This ruling essentially allows retailers to have their cake and eat it too. Retailers may choose to implement the surcharge fee, but it remains to be seen if consumers will accept this or take their business elsewhere.

It is expected to take 18 to 24 months before the money will be paid out. Appeals are expected. Many retailers do not believe that this goes far enough. This agreement, after months of negotiations, requires MasterCard and Visa to cut fees for eight months. These charges are the fees merchants pay to accept credit cards. Retailers or plaintiffs, in this case, will be paid 1.2 billion dollars. This cash portion of the settlement is to settle the retailer’s claim of price fixing.

If you are beginning to feel sorry or worried about Visa and MasterCard don’t. They have already put some money aside for this settlement. Visa will pay out more money than MasterCard. Visa’s portion will be at 67%, and MasterCard’s will be at 33%. MasterCard’s burden is even less because the banks will cover a portion of MasterCard’s debt. This will leave MasterCard with 12%.

It will be interesting to see how this affects the credit card payment industry. Retailers have won a huge victory against the banks for being charged unfair fees. The question is will the merchants begin to charge a swipe fee to consumers. It is believed that if this fee is initiated, it will be larger retailers to enact it first. If this becomes commonplace and accepted by consumers smaller retailers will follow suit. This settlement was a victory for the retailers, but If they enact credit card fees, it will be the consumers who ultimately lose.

Monica Kowollik

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