Credit card fee dispute settled

NEW YORK — Visa, MasterCard and major banks agreed to pay retailers at least $6 billion to settle a long-running lawsuit that alleged the card issuers conspired to fix the fees that stores pay to accept credit cards. As part of the settlement, announced late Friday, stores from Rite Aid to Kroger will be allowed to charge customers more if they pay using a credit card.

The pact, which is being called the largest antitrust settlement in U.S. history, is seen as a major victory for merchants that have long complained about the billions of dollars in so-called “swipe” or “interchange” fees that they pay to banks for each purchase made using plastic. But at a time when shoppers increasingly are using credit and debit cards to pay for purchases, merchants face a dilemma of how to charge shoppers extra without angering them.

“These new rules will give merchants the tools they need to put pressure on the credit card networks to lower interchange or swipe fees, which are the second- or third-highest cost of doing business for many retailers,” said Patrick J. Coughlin, senior trial counsel at Robbins Geller Rudman & Dowd LLP, and one of the lawyers for the plaintiffs.

According to the National Retail Federation, the nation’s largest retail group, credit card swipe fees costs retailers about $20 billion per year. Duncan Mallory, senior vice president and general counsel for the group, said the settlement is a step in the right direction.

“What we need are changes in the rules that bring about transparency and competition that would be here for years to come,” he said.

The dispute dates back to 2005, when large retailers, including Kroger Co., Safeway Inc. and Walgreen Co. began filing price-fixing lawsuits against Visa, MasterCard and other banks. The retailers claimed the credit card issuers conspired to fix the fees that stores pay to accept credit and debit cards. The fees, which vary depending on the type of store and type of card, average about 2 percent of the price of a purchase.

Visa and MasterCard make money on these fees, which stores pay for each customer who uses credit and debit cards for purchases. The fees are set by card processing networks but collected by, and split with, the banks that issue the cards.

The card companies long have defended the fees they charge stores. They say stores benefit from being able to accept credit and debit cards from customers, who often spend more when they’re using plastic instead of cash or checks. And Visa and MasterCard have banned stores from charging customers more for purchases made with credit cards. But merchants are allowed to offer customers discounts if they pay with cash. Some gas stations do this, for example.

As part of the settlement, credit card companies have agreed to reduce swipe fees for eight months. The temporary reprieve on fees is valued at $1.2 billion. The settlement does not apply to debit cards, which have grown in popularity for small-value transactions.

Noah Hanft, MasterCard’s general counsel, said in a statement that the decision to settle “was based on our belief that MasterCard and our stakeholders are best served by an amicable resolution.”

“Although we have strong defenses to all claims, a settlement avoids years of litigation and uncertainties that are inherent in such cases,” he said.

“We believe that today’s settlements should resolve all issues with the merchant community.”

Visa and MasterCard stock both jumped in after-hours trading. Visa climbed 2.8 percent, and MasterCard rose 3.7 percent.