Settlement Without Consent Assessing the Credit Card Merchant Fee Class Action

Abstract

The multi-district class action In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation has pitted the merchants that accept credit cards against the two largest card networks, Visa and MasterCard, and the thousands of banks issuing their cards. The merchants charged the banks with fixing the prices that businesses pay to accept cards.

Last year, the parties’ attorneys announced a $7 billion settlement, the largest ever. But in exchange, all class members were required to accept (1) an injunction that did not alter the contested pricing practices and (2) a breathtakingly broad release. The settlement prohibited class members from opting out, deeming the injunctive relief class mandatory under Federal Rule of Civil Procedure 23(b)(2).

Despite objections from over half the named plaintiffs and many other merchant class members, the District Court approved the settlement. Home Depot summed up the objectors’ view, arguing that the settlement “fails to address in any meaningful way the anticompetitive practices that are the subject of this litigation” and leaves “Visa and MasterCard . . . free to keep setting . . . fees exactly as they do now, free from any liability . . . .”

Although Fed. R. Civ. P. 23 recognizes mandatory classes when a court enjoins conduct that necessarily impacts the entire class, the settlement here does not have that quality. Its principle feature—granting merchants the ability to surcharge credit card transactions—could be extended to some class members, but not others. Indeed, the settlement explicitly recognized this possibility, allowing Visa and MasterCard to negotiate bilateral agreements with individual merchants that prohibit surcharging.

The court justified its decision on the ground that the merchants could not expect to do any better. They had a slim chance of winning the case and, even if they did, the court could not grant a more effective remedy than the right to surcharge.

The court was wrong on all counts. Antitrust law requires price competition, and nothing about current credit card markets should exempt the largest banks from that requirement. And although commentators’ views on surcharging differ, they agree that the settlement as written does not grant merchants the flexibility necessary to create acceptance fee competition. Finally, if the merchants prevailed, the court could impose significantly more effective relief than the settlement provides. The credit card systems could operate as they do now with one exception. Merchants today must accept all cards issued on a network. The proposed relief would instead empower a merchant to refuse to accept the cards of a large card-issuing bank if that bank refused to offer the merchant an acceptance fee below the networks’ default interchange rate. This approach would force card issuers that are big enough to support their own system to bear the risk that a merchant would drop its cards while continuing to accept those issued by its competitors.

Forcing a mandatory settlement without consent in these circumstances finds no support in Rule 23 and violates the fundamental public policy guaranteeing injured parties a day in court.