Visa Inc. (V: Quote), MasterCard Inc. (MA: Quote) and a number of U.S. banks on Friday agreed to settle a long running merchant class litigation brought by a class of U.S. retailers, who claimed that the defendants conspired to illegally fix the "swipe" fees that merchants pay to accept credit and debit cards.
Under the settlement, U.S. class retailers will receive a 10 basis points reduction in credit interchange rates for eight months, which otherwise would have been paid to issuers and which effectively reduces credit interchange for that period of time.
The settlement will also require Visa and MasterCard to change their rules to allow the retailers to charge checkout fees on credit cards, subject to a cap and a level playing field with other general purpose card competitors.
Visa and MasterCard as well as other defendants in the case, including J.P. Morgan Chase & Co. (JMP), Bank of America Corp. (BAC: Quote) and Wells Fargo & Co. (WFC: Quote), have signed a memorandum of understanding to enter into a settlement agreementi, which will require a final court approval.
If approved, the settlement will represent the largest ever recovery in an antitrust case and will be the second largest class action settlement ever, according to law firm Robbins Geller Rudman & Dowd LLP.
Visa and MasterCard said they have also reached an agreement in principle to settle all claims brought by the individual merchant plaintiffs.
The proposed settlement payments for both the class and individual claims would be about $6.6 billion, of which Visa's share would be about $4.4 billion, the San Francisco, California-based company said.
Purchase, New York-based MasterCard said its share of the cash portion of the settlements will total $790 million on a pre-tax basis.
The value of reduced interchange, or "swipe" fees is about $1.2 billion, Robbins Geller Rudman & Dowd said.
Visa said it plans to record a litigation charge of about $4.1 billion for the second quarter ended June 30, while MasterCard said it will incur an additional $20 million pre-tax charge in its second quarter as it had previously recorded a $770 million charge in its fourth quarter of 2011.
"We believe settling this case is in the best interests of all parties," said Joseph W. Saunders, Chairman and Chief Executive Officer of Visa. "We are comfortable with the terms, which we do not anticipate will impact our current guidance. "
Noah Hanft, MasterCard's General Counsel and Chief Franchise Integrity Officer, said, "Although we have strong defenses to all claims, a settlement avoids years of litigation and uncertainties that are inherent in such cases. We believe that today's settlements should resolve all issues with the merchant community."
"We know that merchants care about their customers and anticipate that they will not impose checkout fees, particularly because the value merchants derive from card acceptance far exceeds their costs," said Hanft. "However, throughout the litigation and as a condition for resolution, the merchant plaintiffs sought a change to the current rule and we focused our efforts in settlement negotiations to ensure consumer safeguards were included."
Visa shares are currently gaining 2.43% in after hours trading after closing the day's regular trading session at $124.09, up $1.45 or 1.18%. MasterCard shares closed Friday's regular trading session at $429.60, up $5.35 or 1.26%, but lost 93 cents in after hours trading.
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by RTT Staff Writer
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