February 21, 2013
Authored by: Bryan Cave Leighton Paisner
Preliminary approval to the $7.25 billion class action interchange was granted in November, 2012, providing for a $6.05 billion fund, a temporary reduction in interchange fees worth $1.2 billion, modifications to the Visa/MasterCard rules, and the ability for merchants to impose a surcharge on credit card purchases under certain circumstances. In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation applies to all persons, businesses, and other entities that have accepted Visa- and MasterCard-branded credit cards in the U. S. since January 1, 2004, as well as anyone who will accept such cards in the future. A class action lawsuit against American Express is still pending.
The settlement was preceded by seven years of contentious litigation, beginning in 2005 when the first of more than 40 class complaints was filed. The class plaintiffs allege that Visa and MasterCard conspired with its member banks to establish default interchange fees, and that the network rules insulated those interchange fees from competition by preventing merchants from steering customers to less expensive forms of payment (such as rules preventing surcharging and discounting).
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With respect to the settlement’s surcharge provision, the Class Settlement Agreement with Visa and MasterCard (“Agreement”) provides that merchants are permitted to assess surcharges on Visa/MasterCard transactions either at the “Brand Level” (e.g., an assessment on all Visa-branded credit card transactions) or “Product Level” (e.g.,, an assessment on all Visa-branded “Reward Card” credit card transactions), provided that (i) the fees are not prohibited by state law, (ii) the fees do not exceed the costs that the merchant pays to accept cards and (iii) the merchant complies with the disclosure requirements at the point of entry, point of sale and on the receipt. A checkout fee at the issuer level (e.g., an assessment on Visa-branded credit cards issued by Citibank and Bank of America, but not on Visa-branded credit cards from Capital One or from local banks) is not permitted. The Agreement also requires a level playing field by permitting a surcharge if (i) the merchant is able to surcharge each other credit card it accepts or actually does so and (ii) the merchant also surcharges equal or higher cost cards on networks that maintain non-discrimination rules (e.g. American Express, Discover).
Permitted “Brand Level” and “Product Level” Surcharges
More specifically, a permitted “Brand Level” surcharge with respect to Visa/MasterCard credit card transactions is one in which:
- A merchant adds the same surcharge to all Visa/MasterCard credit card transactions, regardless of the card’s issuer or product type, after accounting for any discounts or rebates offered by the merchant at the point of sale; and
- The surcharge on each Visa/MasterCard credit card transaction is no greater than the merchant’s Visa/MasterCard surcharge cap (which is the average Merchant Discount Rate applicable to transactions at the merchant for the preceding one or twelve months, at the merchant’s option).
“Merchant Discount Rate” is defined as the fee, expressed as a percentage of the total transaction amount, that a merchant pays to its acquirer or processor for transacting on a credit card brand.