Thousands of retailers struggling to survive the current recession could see a welcome influx of cash by Christmas if a federal judge approves a request to distribute more than $1 billion remaining from the six-year-old settlement of a lawsuit against Visa and MasterCard debit card practices.
The class-action lawsuit, brought by NRF and about 20 of the nation’s largest retailers, was settled in 2003 for $3.1 billion.
Visa and MasterCard were allowed to pay the damages on an installment plan that was scheduled to run through the end of 2012, and have paid about $1.85 billion so far. Most of the funds received have been distributed to merchants represented in the suit, but under the original schedule retailers would have to wait almost three more years to receive the remaining $1.2 billion.
Rather than continue to make installments, Visa and MasterCard have recently agreed to satisfy their obligation by paying $1.1 billion now. The agreement means retailers will receive slightly less than originally agreed on, but the money will come at a time when many are strapped for operating cash.
Jeffrey Shinder, managing partner of the New York office of retailers’ lead counsel, Constantine Cannon, asked U.S. District Court Judge John Gleeson last week to move quickly to approve distribution of the funds.
“Given the current economic climate – where merchants anticipate a weak fourth quarter and where some claimants likely face the prospect of going out of business – any delay in making this distribution is a material issue,” Shinder wrote.
Once the exact size of the distribution and required reserves are determined, checks could be mailed in about four weeks, Shinder said.
Including funds left over from previous distributions, the Visa/MasterCard lump sum payment makes just under $1.2 billion available. The money would go to about 635,000 merchants, with each one’s share based on the percentage previously received as determined by their volume of debit card transactions during the period covered by the lawsuit.
The lawsuit alleged that Visa and MasterCard’s “honor all cards” practice of requiring retailers who accept their credit cards to also accept their “Visa Check” and “Master Money” debit cards was a violation of federal anti-trust law. Merchants objected to the cards in part because the signature-based cards carry higher transaction fees than independent bank debit cards activated by a PIN number. In addition to the named plaintiffs, the lawsuit was a class action representing anyone who had accepted Visa or MasterCard debit cards from October 1992 through early 2003.
In addition to the $3 billion in damages, Visa and MasterCard agreed to no longer require merchants who accepted their credit cards to accept their debit cards. Merchants were also allowed to choose whether to accept both signature and PIN debit, one or the other, or no debit cards at all.
Retailers can see details about the distribution plan, and NRF will arrange a conference call after the plan is made final. For more information, contact NRF Senior Vice President and General Counsel Mallory Duncan.
The article above is reprinted from the current issue of Washington Retail Insight, NRF’s weekly e-newsletter covering public policy issues affecting the retail industry.