Legal Definitions and Terms Related to the Interchange Fees Settlement

The settlement between Visa and MasterCard, officially titled “In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation,” resolves a class action lawsuit initiated by merchants against Visa and MasterCard concerning interchange fees. This significant settlement includes crucial elements and legal terms relevant to U.S. merchants. Although these terms can be complex, we have simplified the legal definitions and terms related to the interchange fees settlement in this article for better understanding.

Interchange Fees

Whenever you process a credit card payment at your business, you incur a fee divided into three components: interchange, assessments, and processor markup. The interchange fee (which is also the center point of this whole litigation) is the predominant portion paid to the banks issuing the credit cards. Visa and Mastercard determine and publicly list these interchange rates, structured across numerous categories, each with its own set of qualifying criteria. If a transaction aligns with the criteria of a specific category, it incurs that category’s designated interchange fee.

Interchange rates are established to mirror the issuing bank’s risk and the costs associated with facilitating a transaction. These rates are generally influenced by the type of product purchased and the security measures involved in the transaction. For example, transactions conducted in person usually attract lower fees compared to those carried out online, reflecting the differing levels of security risk.

Additionally, the cost of credit card transactions is often a percentage of the transaction rather than a flat rate, reflecting the higher risk taken by the issuer in extending credit. The specific type of credit card—such as consumer or business—can also affect interchange costs. Regulations governing interchange fees can also vary significantly across different regions, impacting how these fees are structured and applied.

Legal Definitions and Terms Related to the Interchange Fees Settlement

Here are all the important legal definitions and terms that are related to the settlement

Class Action Settlement

This agreement involves a collective of plaintiffs, specifically merchants and Visa and MasterCard defendants. Settlements typically include negotiations that conclude with agreed-upon compensation for the plaintiffs, often encapsulated in detailed legal terminology.

The Visa and MasterCard Class Action Settlement, amounting to $5.54 billion, settles a 15-year lawsuit. This lawsuit accused Visa, MasterCard, and their associated banks of breaching antitrust laws by imposing excessive fees on merchants for accepting their cards.

Rule 23(b)(3) Settlement Class

This class encompasses all individuals, businesses, and entities that accepted Visa or MasterCard cards in the United States between January 1, 2004, and January 25, 2019.

Exclusions from this class are plaintiffs who have already settled and dismissed their cases against the defendants, the U.S. government, the named defendants, and their immediate relatives, as well as financial institutions that issued or processed Visa or MasterCard transactions during the stated time frame.

Injunctive Relief

Injunctive relief, commonly referred to as an injunction, is a judicial order that can either restrict or mandate a specific action by an individual or organization. Its primary purpose is to avert actions that might cause irreversible harm to another party.

In the context of the Visa and MasterCard settlement, injunctive relief could involve modifications to the management of interchange fees or alterations in the agreements for processing merchant transactions.

Authorized Claimant

A member of the Rule 23(b)(3) Settlement Class who files a valid claim within the stipulated deadlines and thus becomes eligible to receive a portion of the settlement fund.

Opt-Outs

Members of the settlement class who decide to exclude themselves from the settlement. These individuals will not receive any compensation from the settlement fund, but they retain the right to sue the defendants separately for the claims covered under the lawsuit.

Release of Claims

By agreeing to the settlement, class members release all claims against Visa, MasterCard, and associated banks concerning the conduct alleged in the lawsuit. This release is comprehensive and includes known and unknown claims related to the litigation’s subject matter that could have been raised during the specified period.

Surcharge

A credit card surcharge, also referred to as a checkout fee, is an additional charge that a merchant applies when a customer pays with a credit card. This surcharge allows merchants to pass the cost of the credit card interchange fee directly to customers, rather than absorbing it themselves, and makes customers aware of the extra fee for using their credit card.

The settlement could impact the regulations surrounding how merchants apply surcharges to credit card transactions. These regulations are complex, requiring adherence to both legal standards and payment network rules.

Forward-Looking Statements

A forward-looking statement anticipates future events or outcomes or considers them as potential expectations or possibilities.

Visa and MasterCard have both issued statements regarding the anticipated impact of the settlement on their future operations. These statements are based on current expectations and could change depending on various factors, including judicial approvals and the ability of the companies to fulfill the terms of the settlement.

Dismissed Plaintiffs

In the Payment Card Interchange Fee Settlement, dismissed plaintiffs refer to businesses and other entities that accepted Visa or MasterCard cards during the period covered by the lawsuit but chose not to participate in the lawsuit.

Fairness Hearing

A fairness hearing is a public court proceeding where the judge evaluates whether a proposed settlement is fair, reasonable, and adequate. During this hearing, the court reviews the negotiation process between the parties and determines if the settlement serves the interests of the class members. Class members have the opportunity to raise objections to any aspect of the settlement at this time.

Additionally, the fairness hearing allows parties to confirm that all potential claimants have the opportunity to participate in the benefits derived from the settlement.

Class Administrator

A class administrator is an independent third party appointed by the court to manage various aspects of a settlement class. Their responsibilities include sending notices to class members, handling claims, and distributing settlement funds.

For the Payment Card Interchange Fee Settlement, the class administrator is a court-appointed entity responsible for overseeing the settlement claims process. The duties of the class administrator include:

• Validating claims
• Distributing settlement funds
• Ensuring compliance with legal requirements
• Sending settlement notices to class members
• Reviewing and deciding on claim forms
• Disbursing payments for approved claims

Conclusion

The Visa and MasterCard settlement, a $5.54 billion agreement, addresses long-standing issues regarding interchange fees. This settlement encompasses various legal terms, such as injunctive relief and authorized claimants, impacting merchants who accepted Visa or MasterCard between 2004 and 2019. While offering compensation to eligible parties, it allows opt-outs for those pursuing separate claims.

The release of claims against Visa, MasterCard, and associated banks signifies closure for the litigants. The fairness hearing will ensure equitable distribution of settlement funds, overseen by a class administrator. Through these measures, the settlement aims to resolve complex legal disputes surrounding interchange fees and antitrust litigation.

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