Retailers win $3 billion, lower deb

http://www.usatoday.com/money/industries/banking/2003-05-01-debit-settlement_x.htm

NEW YORK (AP) â?? Thousands of major U.S. retailers including Wal-Mart and Sears have settled their antitrust case against Visa and MasterCard over debit cards, winning $3 billion and lower transaction fees for use of the popular plastic.

The deal was hailed by the retailers' lawyer as a "major victory" for merchants and their customers.

"The world of debit is about to change for the better, for merchants and for consumers," said the retailers' lead attorney, Lloyd Constantine, after signing a deal with Visa USA on Wednesday night. "Five million merchants will now get relief from excess fees that were forced down their throats."

The Visa deal calls for the company to pay roughly $2 billion to the retailers and reduce debit card fees, Constantine said. MasterCard International will pay $1 billion and reduce fees.

The case against Visa had been scheduled to go to trial this week; MasterCard settled with the retailers on Monday. The card companies faced billions of dollars in damages if they lost at trial.

The retailers had claimed that Visa and MasterCard trapped them into paying high fees by demanding that stores that accept their credit cards also accept their debit cards.

Visa USA said in a statement that it had reached "an important agreement in principle" with the plaintiffs and would change its debit card policies.

"We believe this settlement is a reasonable and responsible resolution that serves the interests of consumers, merchants and our member financial institutions," said Daniel Tarman, a Visa vice president.

MasterCard's general counsel, Noah Hanft, said his company was satisfied with the outcome.

"We're pleased that we're able to come to an understanding with the merchants community," he said. "It's good to be able to move forward without litigating this case in the courts."

The Visa deal announcement came after a federal judge postponed opening statements in the trial until Friday, saying he hoped he was offering "breathing room" so the sides could settle. The judge must approve the deals, which include immediate $25 million payments.

Tarman, said Visa would modify its "honor all cards" policy and that, beginning in January, merchants can decide whether to continue to accept Visa's debit cards.

Visa and MasterCard said the "honor all cards" policy was important so consumers could have more choice. Retailers, who filed suit seven years ago, said the process ultimately cost people more money.

The debit cards use a customer's signature to verify a transaction. Many merchants would rather use less expensive, independent networks that clear debit-card transactions using a personal identification number, or PIN.

Analysts said Visa was likely feeling intense pressure to settle the case rather than face a trial that threatened to drag well into summer â?? a trial that could have been more difficult without MasterCard fighting alongside.

If the merchants prevailed at trial, Visa would have been liable for damages running into the tens of billions of dollars.

"It's a terrific day for consumers," David Balto, a former Federal Trade Commission policy director, said after hearing about the settlement. "Consumers will see the benefits of lower prices, greater choice and safer debit card products."