Visa & Mastercard Interchange Fees Merchant Class Action Update
In recent years merchants, regulators, banks and financial institutions, consumers and other parties have been keenly focused on “interchange fees” charged to merchants by issuers of credit or debit cards for any transaction in which the card is used for a purchase. Interchange fees typically consist of a percentage fee, based on the volume of the transaction, and a per-transaction fee. The Federal Reserve Bank has estimated that the value of interchange fees paid on Visa and MasterCard credit and debit cards has increased substantially, from about $20 billion in 2002 to approximately $35 billion to $45 billion in 2007 (the most recent year for which such data is made available by the U.S. Government Accountability Office).
In 2005 a class of merchants for themselves and on behalf of thousands of merchants commenced a class action lawsuit against Visa and Mastercard as well as several large credit card issuing banks. The class action suit alleged that merchants paid excessive fees to accept Visa and Mastercard cards because Visa and Mastercard, individually and together with their respective member banks, violated the antitrust laws by engaging in a conspiracy to fix interchange fees, also known as swipe fees, that are charged to merchants for the privilege of accepting payment cards, and other allegedly anti-competitive trade practices in the credit card industry.
In September 2018 a settlement of the class action lawsuit was announced, and in January 2019 the United States District Court for the Eastern District of New York issued an order preliminarily approving the proposed class action settlement in the Payment Card Interchange Fee and Merchant Discount Antitrust Litigation (MDL No. 1720 (MKB) (JO).
The settlement agreement, if finally approved, will provide a minimum of $5.54 billion and a maximum of $6.24 billion to merchants (with certain exceptions) that have accepted either or both of Visa and Mastercard branded cards at any time from January 1, 2004 to January 25, 2019. The ultimate aggregate amount available in the settlement will depend on the number of merchants that exclude themselves from the settlement.
Merchants within the class who do not wish to participate in the class action settlement must exclude themselves by July 23, 2019. Members of the settlement class who do not exclude themselves by the July 23rd deadline will be bound by the terms of the class settlement agreement, including the release of claims against the defendants and other released parties - even if such members of the class do not submit a claim for payment.
After the settlement is finally approved, merchants within the class will have to file their claims in order to receive a pro rata share of the net settlement fund. Note that, as of this writing, the claims filing deadline has not yet been determined. Epiq Class Action and Claims Solutions, Inc. has already been chosen as the class administrator. Procedures for filing a proof of claim and a claims register have not yet been established.
As the settlement moves toward finality, additional important details will crystallize and become clear. Among other things, market participants such as alternative investors will explore whether participating merchants in the class wish to, or perhaps even need to, sell their right to payment of the settlement funds in exchange for immediate cash.
Rimon’s attorneys have extensive experience with the purchase and sale of financial claims such as those expected to arise under the Interchange Fee Class Action. We represent hedge funds, trading desks, financial institutions and vendors in hundreds of such transactions every year. Rimon’s attorneys are actively involved in establishing market practices and developing market standards. Rimon will continue to monitor and report on these and other important developments as they unfold.
 Objections to the settlement must be filed with the court by July 23, 2019. A hearing on final approval of the settlement has been scheduled for November 7, 2019.
John J. Hanley focuses his practice on first and second lien financings; private placements of debt and equity securities; and the purchase and sale of loans, securities, trade claims and other illiquid assets. His clients include business development companies, specialty lenders, investment banks, hedge funds, actively managed CLOs, special purpose vehicles, and other financial institutions.
Patrick Maschio regularly represents broker-dealers and hedge funds on legal issues related to the purchase and sale of loans and private securities of distressed and bankrupt companies with a focus on handling transactional matters related to the transfer of bank debt, private notes, trade claims, restrictive securities, interests in litigation trusts and other illiquid financial assets, both domestically and in Europe.
Douglas Schneller handles a broad range of complex transactional matters involving bank finance and lending; restructuring, bankruptcy and insolvency; inter-creditor and subordination arrangements, including for mezzanine, leveraged, multi-lien and unitranche financings; claims analysis and reconciliation; and purchases and sales of par and distressed assets such as bank loans, notes, accounts receivable, trade claims, bankruptcy claims, and equity interests.