Credit Interchange Settlement: The Impact on Selected Future Transactions

Much has been and will be written about the Memorandum of Understanding, filed on July 13, 2012, that sets out the parties’ binding obligation to enter into a class settlement agreement in the long-pending interchange fee antitrust litigation (“MOU”).  Commentators generally have focused thus far on Visa’s and MasterCard’s settlement payments (see paragraphs 9-10 of the form of Class Settlement Agreement); temporary withholding of interchange (see paragraphs 11-13); and rules changes regarding surcharging and related matters (see paragraphs 39-65); as well as the scope and impact of the plaintiffs’ releases of claims (see paragraphs 31-38, 65 -74) and the various opt outs from the settlement.  Our initial comment on the MOU, however, focuses solely on future transactions that are facilitated by the MOU provisions mandating rules changes.

Such transactions are of two types.  First, notwithstanding that Visa and MasterCard must generally revise their rules to give merchants the right to apply surcharges to credit and charge cards at either the brand level (e.g., all Visa credit and charge cards) or the product level (e.g., MasterCard World Cards but not World Elite Cards), the MOU permits Visa and MasterCard to enter into agreements with merchants to forego exercising this right (see paragraphs 42(f), 55(f)).  Specifically, the MOU permits Visa or MasterCard to “contract with merchants not to surcharge” the applicable cards so long as the contract is (i) of fixed duration, (ii) not subject to an evergreen clause, (iii) individually negotiated with the applicable merchant, and (iv) supported by consideration, such as the network’s reduction in interchange in exchange for the merchant’s abstention from surcharging.   (The same MOU provisions go on to preserve Visa’s and MasterCard’s rights to limit or decline the acceptance of their respective cards by a payment aggregator or service provider with a proprietary acceptance mark that surcharges or discriminates against the applicable network.) These provisions have clear parallels with Comment 7(b)-3 to Regulation II (implementing the “Durbin Amendment”).  That Comment provides that while issuers and networks are generally barred from inhibiting a merchant’s ability to direct the routing of its debit card transactions, a “payment network does not restrict a merchant’s ability to route transactions over available payment card networks in violation of [Section 7(b)] by offering payments or other incentives to encourage the merchant” to do so.

Second, Visa and MasterCard must modify their respective rules to permit merchants to organize “bona fide buying groups [which comply with DOJ and FTC antitrust standards] to negotiate with [the network] on behalf of members of the buying group.”  (See paragraphs 43, 56.)  With respect to any proposal that the network believes provides reasonable commercial benefits to the parties, the network must negotiate with the buying group in an effort to reach a commercially reasonable agreement.  The network also must exercise its “discretion and business judgment in good faith” in determining whether the proposal sets forth commercially reasonable benefits for the parties, in negotiating with respect to the proposal, and in determining whether to accept the proposal.  In the event of a dispute regarding, for example, whether MasterCard is negotiating in good faith, the buying group could seek declaratory relief from the court administering the settlement.

The volume and significance of transactions that will be facilitated by these provisions is not yet clear.  In particular, the buying-group provision may not yield materially different results than did the discussions several years ago that led to special interchange categories for certain types of merchants.  We will be watching, however, the flow of transactions under these provisions, and will report back from time to time.