Interchange Settlement Nears Preliminary Approval

October 31, 2012

Today the Official Merchant Services Blog explains why the controversial Interchange settlement is being considered for preliminary approval, despite the backlash from merchants and large corporations. We began talking about the possibility of ‘The Big Cash Comeback’ when the settlement was first announced, and later we discussed the opposition to the settlement.

Last week Judge John Gleeson said the controversial proposed settlement appears to meet the requirements for preliminary approval, however he also said he would hear merchants’ objections to the settlement as well.  Lawyers had struck the settlement between the merchant plaintiffs and the bank defendants back in July.

“It seems clear that there is an expectation among some interested parties that the preliminary approval process should be more involved in this case than in the usual class action,” Gleeson, of U.S. District Court in Brooklyn, N.Y., wrote in an order setting the next hearing for November 9th.

The involved parties and observers alike agree that this is no ordinary case. The litigation involves merchants and merchant trade groups, some individually and some as a class, which sued Visa Inc., MasterCard Inc., and some large banks to challenge credit and debit card Interchange rates on antitrust grounds in 2005.

The proposed settlement would have the defendant’s pay $6.6 billion in damages and temporarily cut Interchange fees by $1.2 billion, as well as provide merchants with relief from some network rules. In return, the merchants would forgo the right to sue the networks in the future over interchange and rules. The general consensus is that the settlement gives too much to the networks and would bind millions of current and future card-accepting merchants to its terms.

Judge Gleeson acknowledged the controversy, stating that all objections will receive careful consideration by the court.  The Judge also noted that the threshold for preliminary approval of a settlement is “meaningfully lower” than the standard for final approval.

Gleeson said, “Preliminary approval is appropriate where the proposal appears to be the product of serious negotiation and further appears to be within the range of possible final approval.” He later added: “I have reviewed the settlement agreement, and at first blush it appears to satisfy the threshold requirements for preliminary approval.”

While we have discussed this settlement from different aspects previously, noting the advantages it would seem to give the Issuing Banks over merchants, the settlement seems to be proceeding along without much further adjustment or negotiation. Although it is not finalized yet, the dissenter’s cries seem to be going unheard, as they believe that the settlement protects the status quo more than anything, and will not change the way the networks set interchange. Host Merchant Services will keep you informed of all the latest news involving this legal battle between the merchants and the card-issuing giants.

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