Appeals court nixes $7.25B credit card swipe fee settlement

“This is not a settlement; it is a confiscation”, U.S. Circuit Judge Pierre Leval said in one of two opinions.

The negotiation was meant to solve nearly ten years of lawsuit concerning whether MasterCard and Credit incorrectly mounted costs that retailers were billed when clients utilized bank or credit cards.

“The settlement orchestrated by the card networks and banks would have undermined merchants’ legal rights forever and would have allowed Visa and MasterCard to impose higher and higher swipe fees”, Deborah White, the group’s executive vice president, said in a statement.

Jason Kupferberg, an analyst at Jefferies LLC, said the case would likely go back to the lower court that oversaw the original settlement.

“We are thrilled”, Jeffrey Shinder, a lawyer who represented about 60 retailers including Wal-Mart Stores Inc., Amazon.com Inc. and Gap Inc., said in a phone interview. O , Costco Wholesale Corp COST.

In Thursday’s ruling, the appeals court overturned the decision by a U.S. District Court judge to accept the settlement, in which the card companies proposed that fees be passed along to consumers as a surcharge.

The payment networks were the worst performers in the 68-company S&P 500 Information Technology Index, with Visa sliding 3.4 percent and MasterCard falling 4.4 percent.

The 2nd Circuit returned the case to the federal court in Brooklyn, where U.S. District Judge John Gleeson, who has since left the bench, had approved the settlement in 2013.

Some argued that the payout should have been higher, while others said terms limiting the ability of retailers to sue Visa and MasterCard in the future were too broad.

Card issuers American Express Co AXP.N and Discover Financial Services DFS.N also objected to the settlement.

NRF said credit card swipe fees average about 2% of each transaction and amounted to about $30 billion a year at the time of the settlement.

“This “settlement” was never a settlement on behalf of the retail industry but rather a backroom deal that failed to represent the interests of retailers”, said NRF senior VP and general counsel Mallory Duncan. “It’s a happy day for competition, for merchants, and for consumers”.

Thomas Goldstein, a lawyer for retailers opposing the accord, and Paul Clement, a lawyer for retailers supporting it, did not immediately respond to requests for comment.

Card-issuing banks would have funded much of the settlement. Both declined to comment.

One class of merchants that accepted Visa or MasterCard from January 2004 to November 2012 was to share in up to $7.25 billion, while a second class accepting the cards from then on was to get injunctive relief in the form of rule changes.

Among other things, the appeals court noted that the settlement called for $544.8 million in lawyer fees.