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What Does Legal Battle Over Swipe Fees Mean for Consumers?

Swipe Fees

It’s been an erratic week for those involved in the credit card swipe fee battle. Actually, it’s been an erratic eight years since it’s dragged on all this time, with little – if any – resolve. Here’s the latest and what it really means for the American consumer and the way he uses his credit cards. Get ready, though – it’s in our faces, it won’t go away – and you’re likely going to be surprised at what it doesn’t do for the American consumer.

Eight Long Years…and Counting

Several years ago, in 2005, several of the nation’s biggest and most recognized merchants came together and filed lawsuits against Visa, MasterCard and their member banks. The argument was that the credit card companies and banks had violated financial laws by charging various interchange fees. They argued that MasterCard and Visa were secretly working together to make sure those fees remained high and as a result, it became difficult for them to accept credit cards, which meant they were losing sales. A few years later, President Obama signed the CARD Act into law, which would or should have alleviated some of those problems.

It didn’t and the lawsuits kept coming. Late last year, a judge involved with the long-suffering courtroom battle between merchants and credit card companies finally decided on a $7.2 billion settlement. It would be paid out to around 8 million merchants. That wasn’t enough, claimed many of the larger retailers like Wal Mart and 7 Eleven. They appealed the decision and for the past few months, the bickering has continued.

One of the arguments being made by the merchants is that there are no protective mechanisms in place that would keep the card companies from increasing their fees again in the future. Worse, there are no provisions that would allow the merchants to again sue them. And then it got more bizarre.

Merchants Divided

Some of the merchants whether they were frustrated with the long, drawn out suits or if they thought the settlement was fair, decided they’d take the money and run. As you might imagine, it’s caused problems for those committed to seeing the lawsuit through all of the appeals. Earlier this month, a new website went up by some of those merchants determined to ensure their futures include options that will allow them to keep the surcharge fees to a minimum.

The website is controversial and before long, the site was the center of yes, one more lawsuit. It played out in a courtroom this week. The site was founded by at least eight of the retailers who say the credit card companies are operating a monopoly and that there is no one who’s working to ensure they don’t take advantage of their power. It then provides the information for retailers to opt out of the settlement. Those who support the settlement are furious. Turns out, so is the judge.

Judge Rules

U.S. District Judge John Gleeson heard arguments yesterday from both sides and for the purposes of that hearing, it was strictly limited to the new website. He said the wording used on the website would lead some to believe that there were no options other than the opting out or objection choices that are on the site. He continued his scolding for fifteen minutes and said, “It’s not fair” and “It’s completely misleading”. This is the same judge who ruled on the multi billion dollar settlement.

Judge Gleeson then ordered both sides to submit proposals on what they feel “appropriate relief” would be within one week and that for the time being, he wouldn’t order any websites down, but would entertain suggestions on how to provide clearer language and perhaps even “banners” to be posted on the sites. He also said he might would allow a notice on the site that included his ruling and his own personal opinion that he felt it was misleading.

Remember, the $7.2 billion ruling is the largest antitrust settlement in American history. That ruling will be finalized based on a May 28 deadline both sides have to object or opt out. Objections ensure they receive their share of the settlement. Opting out is just that – they’re out of the mix.

The Lawyers

Attorney Jeffrey Shinder, representing some of the objectors, told Reuters after the hearing:

We will work within the court’s order to ensure that no one has objected or opted out under any kind of misconception.

Meanwhile, an attorney for the retailers who support the deal said the judge’s ruling could help “fix the damage”.

For their parts, both Visa and MasterCard have said they are confident the deal will receive the judge’s support, though they too have the option of backing out if merchants generating 25 percent of more of credit card volume opt out. It’s hoped it will all be resolved and finalized in a hearing set for September.

But What Does it Really Mean for You

So the real question is: what do all of these ridiculous arguments do for the American consumer? The answer, simply stated, is: nothing. Nothing at all.

The banks would have consumers believing that they’re charging the fees to the retailers so that you aren’t eating them and in fact, are instead earning rewards points, gas miles and cash back when you use your credit cards. Meanwhile, the retailers will tell you they’re doing battle for the typical credit card using American consumer and that the swipe fees are pushing up the cost of everything in their store. They too say everything they do is for you.

In fact, no matter what happens, you and me and Uncle Cletis Earl are the ones who are going to ultimately pay the fees – regardless of who gets to gobble those billions of dollars in settlement. Sure, things will wax and wane, but in the end, we’re paying the annual fees, the interest rates, the surcharge for using our debit card for purchases less than $10, the ATM fees, the late fees, the no activity fees, the extra we pay to offset shoplifters – and yes, the surcharge fees.

And did we mention you’re also paying the costs associated with the salaries of the court employees, the bailout funds for the banks who participated in TARP? Ultimately, despite the many years this has dragged on and no matter what the websites say – these lawsuits mean nothing to the American consumer. And if you receive any kind of refund in the mail as a result of swipe fee settlement money, you might want to contact law enforcement because it’s most likely a scam.

As one analyst explained it – in a highly competitive retail market, retailers simply don’t have the surplus for the banks to expropriate, which means those losses come out of the consumer’s wallets. The evidence is found when you realize that even though retailers haven’t traditionally been allowed to implement various surcharges for credit card transactions, they can and do offer discounts for cash payment – especially when it comes to your gas purchases.

It’s not a fair comparison though because the fuel market and the retail market are miles apart in every aspect – the commodities angle, the competition, etc. Plus, ask any convenience store operator and he’ll tell you there are no profits in gasoline – it’s simply the way of staying competitive with the next convenience store less than a block away.

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