--Wal-Mart has battled with Visa and MasterCard previously over
card fees
--Investors worry merchants could derail the settlement if too
many oppose it
--Settlement expected to go before a judge for preliminary
approval later this year
(Adds timeline for preliminary approval, in the eighth
paragraph.)
By Andrew R. Johnson
Wal-Mart Stores Inc. (WMT) urged merchants Tuesday to reject a
pending multibillion settlement reached by Visa Inc. (V) and
MasterCard Inc. (MA) of numerous lawsuits filed by retailers over
credit-card fees.
The move is the latest swipe taken by the world's largest
retailer against the card industry, which has battled with Wal-Mart
previously over what are known as interchange fees in court and
Capitol Hill.
The Bentonville, Ark., company is also the latest merchant to
come out swinging against the settlement, which would put to bed
more than 50 lawsuits filed since 2005 against Visa, MasterCard and
numerous large banks that issue the payment networks' cards. The
suits, which are consolidated in U.S. District Court in Brooklyn,
argued that the defendants conspired to set transaction fees
arbitrarily high. The litigation was set to go to trial in
September.
"The proposed settlement would not structurally change the
broken market or prohibit credit-card networks from continually
increasing hidden swipe fees," Wal-Mart said in a statement, adding
that it urges "all merchants to put consumers first and reject the
settlement."
Target Corp. (TGT) and the national association of convenience
stores, or NACS, which is a plaintiff in the suits, have also
opposed the deal. Wal-Mart and Target aren't parties to the suits,
though they will have the chance to formerly opt out of the
class-action settlement. If enough merchants opt out, it could
derail the deal.
"It's a very real possibility that there could be a snowball
effect," said David Robertson, publisher of the Nilson Report, a
payments-industry newsletter. "You do have two of the largest
retailers speaking out against the settlement, which is
significant."
A key issue for critics of the deal is the release it would
grant Visa and MasterCard over future litigation, preventing
merchants from suing the payments networks again over how
interchange fees are set. In addition, rule changes that Visa and
MasterCard have agreed to under the settlement, including the
ability for merchants to charge customers an extra fee for paying
with a credit card, would be binding on all merchants, regardless
of whether they opt out of the settlement. Some merchant groups
have argued the surcharging provision has too many strings
attached, effectively making it too difficult for retailers to take
advantage of it.
The settlement is expected to go before a judge for preliminary
approval later this year.
Wal-Mart said the settlement "would require merchants to broadly
waive their rights to take action against the credit-card networks
for detrimental conduct or acts."
Wal-Mart has a tenuous history in the payments industry, having
pushed aggressively for changes to how card fees are set. Those
fees, known as interchange, are decided by Visa and MasterCard but
collected by card-issuing banks, such as Bank of America Corp.
(BAC), J.P. Morgan Chase & Co. (JPM) and Wells Fargo & Co.
(WFC), as revenue.
The retailer was a key proponent of the Durbin amendment, a
provision of the 2010 Dodd-Frank financial-overhaul legislation
that nearly halved the interchange fees charged on debit-card
transactions. Banks and card networks lobbied hard to first squash
and then delay the provision, which ultimately took effect in
October but didn't touch credit-card interchange fees.
Wal-Mart also helped win a $3 billion class-action settlement
with Visa and MasterCard in 2003 over the card networks' rules that
required merchants who accepted their credit cards to also accept
their debit cards. Visa and MasterCard agreed to drop that rule and
temporarily reduced debit-card transaction fees as part of the
settlement.
"I think it's ironic that Wal-Mart, which of course was a lead
plaintiff in a prior case that achieved dramatically less in the
way of market reforms, is now criticizing our case even though we
achieved dramatically more market reforms," said Craig Wildfang, a
partner with Robins, Kaplan, Miller & Ciresi LLP, one of the
law firms that helped negotiate the settlement on behalf of the
class plaintiffs.
Critics of the settlement "haven't said what they think it is
that could be obtained in an antitrust trial that we haven't
obtained," Mr. Wildfang added. "The kinds of things they seem to
want are not things that are attainable in an antitrust trial.
They're more regulatory. We agree that there remain issues...with
respect to the payment-card markets, but federal judges aren't
going to order Visa and MasterCard to reduce their prices."
It isn't the "least bit surprising" that large merchants such as
Wal-Mart and Target have opposed the settlement, given their
constant push to lower fees, said Eric Grover, principal of
payments-consulting firm Intrepid Ventures and a former sales
manager for Visa.
"Large merchants effectively want card-acceptance costs to be
zero, to be free," Mr. Grover said, adding he expects merchants
will continue to lobby for broader changes to how card fees are
set, regardless of the settlement outcome.
While Wal-Mart and Target aren't parties to the litigation, they
will have the chance to formally opt in or out of the settlement as
part of the court-approval process. NACS is also one of 19 class
plaintiffs that had filed lawsuits against the card companies,
though the law firms representing those parties have filed a motion
to withdraw as counsel for the trade group.
NACS has already hired law firm Constantine Cannon LLP, which
helped reach the $3 billion settlement in 2003 in the Wal-Mart
case, to represent it in the proceedings.
A provision of the deal would allow Visa and MasterCard to
cancel the deal if merchants representing at least 25% of
credit-card sales volume opt out of the settlement.
It wasn't immediately clear what Wal-Mart's and Target's
credit-card volume is, though analysts have said it would be
difficult to reach the 25% threshold without a significant number
of merchants opting out of the settlement.
Randy Hargrove, a spokesman for Wal-Mart, declined to comment on
the company's credit-card sales volume.
"The defendants likely contemplated...that some retailers would
take issue with the terms of the settlement and set a fairly high
bar in terms of the settlement termination clause," Sanjay
Sakhrani, an analyst with Keefe, Bruyette & Woods, wrote in a
research note Tuesday.
The other class plaintiffs that are part of the pending
settlement include the National Grocers Association, National
Community Pharmacists Association and Payless ShoeSource, which is
part of Collective Brands Inc. (PSS). Separately, about 20
individual retailers, including Kroger Co. (KR), Publix Super
Markets Inc. (PUSH), Safeway Inc. (SWY) and Walgreen Co. (WAG),
also reached a settlement with Visa, MasterCard and the defendant
banks.
Combined, the card networks and banks have agreed to pay
merchants $6.6 billion, in addition to reducing interchange fees
temporarily, a move valued at $1.2 billion.
MasterCard spokesman Jim Issokson said in a statement Tuesday
that the settlement was reached after years of litigation and
months of negotiation.
"The provisions of the settlement, including the flexibility for
merchants to impose checkout fees, new negotiating tools for
merchants and the scope of the release, was reached with the
assistance of the court and was supported by the merchant class
representing millions of large and small retailers, and prominent
trade groups across the country," Mr. Issokson said.
Visa spokesman Paul Cohen declined to comment.
-Tess Stynes contributed to this article.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com.
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