The U.S. District Court for the Eastern District of New York has preliminarily approved a proposed settlement agreement in antitrust litigation regarding interchange fees and merchant discounts. As part of the settlement, Visa will be implementing certain Visa International Operating Regulation rule changes, including the ability for merchants in the U.S. and U.S. territories to surcharge certain credit card transactions beginning Jan. 27, 2013. Merchants who choose to surcharge once the rule changes take place will be required to follow certain requirements, including disclosing surcharge practices to customers at the store entry point and at the point of sale. Full details about the surcharge rule changes and disclosure requirements will be provided in late December 2012. After Visa's Operating Regulations are changed to permit surcharging and subject to the complete rules that will govern merchant surcharging, U.S. merchants will have the option of adding a surcharge to either all Visa credit card transactions or to particular types of Visa credit card transactions. Specific limits will apply to each of these types of surcharges, and merchant surcharges cannot exceed the maximum amount of 4 percent of the underlying transaction.
On Friday, attorneys for retailers in a long-running antitrust suit challenging the card networks over how interchange rates are set officially filed a motion in federal court seeking preliminary approval of the settlement agreement struck this summer. The $7.25 billion landmark settlement was controversial from the start, drawing opposition from many of the retailers it is supposed to benefit, including many plaintiffs in the actual lawsuit.
Retailer groups have spent much of the fall trying to derail the normal process, which nearly always results in preliminary approval being granted. It remains to see if lobbying efforts and media campaigns waged by retailers will end up convincing Judge John Gleeson that enough retailers have objected to the settlement to justify denying the settlement preliminary approval. But, plaintiffs’ attorneys say this is not the stage in the process for retailers to register objections.
“Preliminary approval plays an important role in the process,” Bonny Sweeney, partner with Robbins, Geller, Rudman & Dowd and co-lead counsel for class in In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, told CardNotPresent.com in a September interview. “It triggers official notification to the class of the actual terms of the settlement. Objecting to preliminary approval will result in a large portion of the class never having been fully informed of its rights under the agreement and never having the opportunity to accept or reject the proposal—a violation of merchants’ right to due process.”
A hearing on preliminary approval is expected to take place in December or January. The judge then will consider granting the proposal that status. Final approval, if granted, could take another year.
Visa CEO Joseph Saunders says the payment card processing firm sees immense potential in the mobile payments sector driven by an increasingly tech-savvy younger generation "weaned on electronics." However, to take advantage of this trend, Saunders says the payment technology must be seamless, flawless, and reliable. "If you've got something sitting in a phone and somehow the phone runs out of juice, or it doesn't work or something like that, you're kind of up a creek," he notes. Saunders anticipates that Visa's long-term opportunities for breakthrough retail/banking technology will likely come from emerging economies such as Africa and India. "It's going to be as individuals move up into middle classes," he predicts. "Are they going to be using electronic money or aren't they going to be using electronic money?" Saunders sees advantage in the advent of a cashless society whose currency is digital, emphasizing the simplicity of using a phone rather than a card to make payments.
The National Restaurant Association is joining opponents of a proposed $7.2 billion antitrust settlement between some merchants and Visa and MasterCard over credit card transaction fees. NRA's main worry is that the settlement would bar all Visa- and MasterCard-accepting retailers from filing future lawsuits over interchange issues, regardless of whether they opt in or opt out of the settlement. "There is strong concern that the proposed settlement agreement will not achieve the litigation's most critical goal—to fundamentally change a broken marketplace in which swipe fees are set," says NRA CEO Dawn Sweeney. The group says the proposed deal neither instills transparency within the interchange system nor reduces costs for restaurants. The NRA joins other major industry groups and players such as Wal-Mart Stores, the National Retail Federation, and Starbucks in opposing the settlement. The Electronic Payments Coalition's Trish Wexler notes the NRA participated in the settlement process and says it is now attempting to "go back for seconds. Instead of accepting the benefits of the settlement, these groups want even more, and will clearly never be satisfied."
Credit cards are still being used to pay for basic needs by many U.S. households, according to a new Demos survey. Forty percent of households that have had credit card debt for at least three months have used their cards to pay for rent or mortgages, insurance premiums, utilities, and groceries, says LowCards.com CEO Bill Hardekopf. The leading contributors to credit card debt were unemployment and medical bills, according to the Demos study, which found that 86 percent of households that had incurred spending on account of unemployment in the past year consequently assumed credit card debt. Nearly 50 percent of surveyed households carried debt from medical expenses on their credit cards. Still, respondents' average credit card debt in 2012 fell 27 percent from 2008 levels. The survey indicates that 50 percent of affected households reduced spending due to tighter credit following the start of the financial crisis. Following the Federal Reserve's deployment of 2009's Credit CARD Act, consumers are paying off debt faster now that their bill statements show how long it takes to settle the balance by paying only the monthly minimum.
Nearly half of U.S. consumers are interested in having a mobile wallet, according to a survey by Carlisle & Gallagher Consulting Group, which labeled those consumers as either Techno Shoppers or Payment Optimizers. Techno Shoppers are consumers who are attracted to the shopping and social features of mobile wallets and can effectively use their cards to make the best possible payment decisions. Within this group, five in 10 would prefer to use PayPal rather than their primary bank as their mobile wallet provider. Three in 10 would prefer to use Google's mobile wallet and two in 10 would prefer to use Apple's mobile wallet. Meanwhile, Payment Optimizers seek to make the best payment decisions based on their financial situation, loyalty benefits, and account management. "Within five years, half of today's smartphone users will be using their phones and mobile wallets as their preferred method for payments," predicts Carlisle & Gallagher's Peter Olynick. "These customers will be using better tools to help them optimize transaction choices."
Direct ACH debit payments made when authorization is given via the Internet or a mobile device grew 9.5 percent in 2011, accounting for nearly 17 percent of total ACH network payments, according to NACHA, the organization that manages the ACH payment network. NACHA estimates that 80 percent of these transactions are to pay bills via companies' or billing services' Websites.
“Consumers want convenient, versatile, and secure payment options,” said Janet O. Estep, president and CEO of NACHA. “Direct payment via ACH puts consumers in control and provides them with the flexibility to make payments through their bank or credit union’s online banking service, the companies they do business with, and via mobile applications.
”Total ACH payment volume grew 4.35 percent in 2011 to more than 20.2 billion transactions worth nearly $34 billion.
Visa and MasterCard both experienced increases in their payments volumes last month. Visa's total U.S. payments volume increased by 10 percent in February compared with February 2011, while the gross dollar volume of U.S. transactions that were processed by MasterCard increased by 14 percent for the quarter through February. Meanwhile, Visa reported that credit and debit card payments volume increased by 15 percent and 7 percent last month, respectively. The increase in Visa's debit card volume comes as growth in overall debit card volume in the United States is slowing following the enactment of Dodd-Frank. The limit that was placed on debit card swipe fees prompted both Visa and MasterCard to eliminate the discounted swipe fees they had offered for smaller transactions, which in turn has spurred some retailers to go back to encouraging customers to use cash for these sales.
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