Visa, MasterCard $7.25B settlement with retailers is thrown out | Hacker News Reader

Visa, MasterCard $7.25B settlement with retailers is thrown out

reuters.com

63 pointschirau11 comments

The decision is available here: http://www.ca2.uscourts.gov/decisions/isysquery/dc5a3fd3-4b4...

I think it is more likely than not that this case will be granted cert. The Supreme Court has in the past wanted to weigh in on extremely large and consequential class action cases. For example, Wal-Mart v. Dukes, 564 U.S. 338 where the District Court certified a class of 1.6 million people.

In a large part these credit card services offer little innovation, but a whole lot of rentier profiteering.

It seems to me maybe time that credit and bank cards become regulated as a public utility. Swipe fees over a nickel are probably exorbitant these days.

I feel like there could be a simpler solution that requires less obligation from the government. I believe merchants are mostly prohibited from passing on credit card fees[0], or even requiring a minimum purchase[1], by credit card service providers. I think it should be made illegal to prohibit merchants from passing on fees however they see fit.

The problem with the status quo is that credit card companies, on top of already making a generous profit, provide incentives like cashback that make it foolish for consumers to not pay with a credit card. If they could pass on the fees, then 1% cashback bonuses might not look so good, and people might shift some purchases away from cards (as just one outcome). The price of the convenience of the card would also be more upfront and the consumer market could properly respond.

[0] This could vary by state, and I think there are some pending suits dealing with this issue.

[1] It's still common to see this at small businesses, but I believe technically you can report businesses that do this.

The outcome of this settlement was to permit passing on fees and to allow minimums.

Now that has been thrown out, so let's go right back to the old way where I could trust that using a credit card would work and not cost money.

The "convenience" argument for credit cards makes no sense to me. As a business owner, it's way more convenient to have money just magically appear in my account than it is to have to count it, store it, transport it to the bank, pay for it to be processed at the bank, and worry about somebody walking off with it at any point in that process.

We can quibble over how much that's worth, but I think it's worth way more than the EU caps for interchange (0.3%) - especially given that the networks and card issuers do have to eat a significant amount of fraud.

I'm not clear on how my solution negatively affects you as a business owner. It doesn't require you to pass on the fees. It's up to you as the business owner.

Unless you think you might lose out on competition adding the fees and accepting cash at a discount. If anything, it could possibly lead to more competition on fees and charges by credit card service providers.

Just curious, went did so many (8000) retailers opt out?

The article explains some of the many criticisms of the proposed settlement.

The typical class action case goes something like this: 500,000 people suffer some small injury by a big company. Say they bought a coffee maker that's supposed to filter water but the filter doesn't always work right. Call it a $10 injury. An entrepreneurial lawyer gets wind of it, and files a class action suit. After some discovery and motion practice, he decides to settle with the manufacturer for $2 for each class member ($1 mm total, with unclaimed money to go to Consumer Affairs), plus $300,000 for settlement administration, plus an injuctive promise never to do it again, plus $300,000 for the lawyers' legal fee.

The manufacturer settles because the legal fees of going to trial would probably not be much less than that and if it lost it could be looking at $5 mm in damages plus the possibility of punitive. The lawyer is happy because he made $300,000 for the equivalent of a few hundred billable hours. The class members are mostly indifferent. Even if many of them open the letter and read it (unlikely) and even if many of them think the settlement is BS, they are unlikely to write a letter to opt out for something that didn't even bother them that much. And they can't practically sue on their own anyway over $10.

This case was very different. The federal government had already forced the credit card companies to admit that they had acted in an anti-competitive manner. This lawsuit was the private follow up to that. The Sherman Antitrust Act provides for treble damages. These potential damages are in the tens or even hundreds of billions of dollars. And they aren't all distributed $10 dollars at a time. Some of the members of the class are giant retailers that individually have in the hundred million or billion dollar range. So there are a fair number of class members that are and were very well aware of what was going on in this case and weren't going to just throw out an opt out notice like most class members in most class action cases.

Like most class lawyers these guys just wanted to settle. Sure maybe they could have gotten even more after trial but $500 million in hand is worth quite a lot in the bush! What's unusual is that there was someone with the incentive and ability to litigate and point out this conflict of interest.

The settlement was weak, so they opted to preserve their right to sue.

"The Home Depot lawsuit comes a month after Wal-Mart sued Visa for the right to choose how customers authorize debit-card purchases. The retailer wants customers to use a PIN, but Visa requires that shoppers can have the choice between a PIN and a signature."

http://www.wsj.com/articles/home-depot-u-s-credit-card-firms...

The whole check card/debit card/credit/debit thing is a total fiasco. It's yet another reason I'm happy to use a credit card for everything so I don't ever have to worry about the transaction being processed the "wrong" way.

If you are a large purchaser, you can almost always get a better deal opting out than letting the class lawyers represent you. With your own attorneys, you can negotiate cheaper fees and more creative settlement arrangements, like discounts on future purchases, etc. There's some risk to opting out and it requires more active involvement, but smart law departments can really contribute to the bottom line instead of being a cost center.

Source: Lawyer who used to do this sort of thing.

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