(UPDATE: Story updated throughout) Visa and MasterCard settled a class-action lawsuit from a group of large retailers on Friday, agreeing to pay billions of dollars in fines to avoid bringing the suit to trial, according to CNN Money. The lawsuit alleges the two payments giants engaged in noncompetitive behavior when pricing interchange, or “swipe,” fees, and therefore made excess profits off of retailers (and their customers) by artificially keeping interchange costs high.
CNN Money reports that the settlement could reach as high as $7.25 billion. The Wall Street Journal cites at least a $6 billion figure.
Suits were filed by Kroger, Payless ShoeSource, and Safeway according to the Wall Street Journal, as well was “several trade groups.” Because the interchange payments go to issuing banks, and not the card networks, the suit names the beneficiaries of Visa and MasterCard’s alleged malfeasance, too: Bank of America, JP Morgan Chase, Citigroup and Wells Fargo.
In addition to a $7.25 billion settlement to the plaintiff class, the settlement includes a decrease in interchange fees (which are typically around 2 percent of any credit transaction), and merchants will now be able to charge customers a convenience fee for using their credit card instead of cash. According to the Journal, this could save merchants $1.2 billion.
The settlement ends a seven-year-long dispute in which retailers alleged that financial institutions engaged in price fixing in setting interchange rates.
Previously, Visa and MasterCard didn’t allow this, which meant that retailers were forced to bear the costs of increased consumer reliance on credit and debit cards. The Durbin amendment to the Dodd-Frank act has now put a cap on those fees for debit transactions at 21 cents, but credit cards have no such cap. So merchants are stuck footing the tab, and passing the costs down to consumers.