Visa, MasterCard to Pay $3 Bln in Suit
Thu May 1, 1:49 AM ET
By Philip Klein
NEW YORK (Reuters) - Visa and MasterCard will pay a combined $3 billion to Wal-Mart Stores Inc. and other retailers to settle a lawsuit over debit card fees that has raged for seven years, representatives of all sides said on Wednesday.
The settlement, which will include a lowering of total card fees at the heart of the dispute by an additional $1 billion later in the year, could have a dramatic impact on how consumers pay for such routine expenses as clothing and groceries.
It also could give a boost to retailers such as Wal-Mart and Sears, Roebuck and Co., which started the suit, and hurt banks that make money from fees on debit purchases such as J.P. Morgan Chase Co Inc., Citigroup Inc. and Bank of America Corp.
Visa USA will pay $2 billion and MasterCard International will pay $1 billion in separate settlements. Each will pay $25 million in cash by year's end and the rest in equal installments over ten years. That will mean $100 million a year for MasterCard and $200 million a year from Visa.
The agreements end a dispute that began in 1996 with a suit by Wal-Mart and other big merchants and mushroomed to include several million retailers across the United States.
The suit argued that Visa and MasterCard rules requiring merchants to accept their signature-verified debit cards imposed higher costs that are eventually passed on to consumers and stifle competition from smaller rivals whose systems use personal identification numbers (PINs).
Debit cards verified with a signature incur fees of $1.50 per $100 transaction compared with about 10 cents for purchases using PIN systems, retailers said. The retailers claimed it cost them tens of billions of dollars over more than a decade.
CONSUMERS COULD BENEFIT
"We have freedom to choose, which will lead Visa and MasterCard to actually compete on price, which will lower prices to merchants and lower prices to consumers," Lloyd Constantine, a New York-based lawyer representing retailers, told Reuters.
Starting August 1 through the end of the year, Visa and MasterCard will lower debit fees by a total of $1 billion, in accordance with their market share, Constantine said. This means Visa will likely pay about $800 million, he said.
In addition, after 2003 ends, Visa and MasterCard will no longer be able to require retailers who accept their credit cards to accept their debit cards as well. This so-called "honor all cards" policy was at the center of the dispute.
"Unlike most class actions in which the damages are only monetary, this one will actually have an impact on future competition," said antitrust lawyer David Balto, who is based in Washington, D.C. "Consumers will feel the impact in cheaper prices, safer debit cards and greater choices. . ."
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