In the past few weeks merchants have been receiving a “Notice of Class Action Settlement” related to a lawsuit against Visa, MasterCard and numerous banks. The purpose of the Notice is to provide information about the law suit and the proposed settlement to members of the “class.” The Notice encompasses 27 pages and can be overwhelming to the non-lawyer reader. Because it outlines a) how members of the class may be entitled to cash payments from Visa and MasterCard and b) certain rule changes concerning surcharges for accepting these cards, the Notice should not be simply tossed in the trash.
The Lawsuit
The case, titled In Re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation has on going in the U.S. District Court, Eastern District of New York, for the past seven years. Plaintiffs brought the case on behalf of merchants who accept Visa and MasterCard and include Payless Shoes, Parkway Corp. and Leon’s Transmission Service, Inc. They claimed that MasterCard, Visa and approximately 40 member banks violated federal antitrust laws by conspiring together set interchange fees (fees typically paid by merchants for accepting Visa and MasterCards) and imposed and enforced rules that limited merchants’ ability to steer customers into other payment methods. It is the Plaintiffs’ argument that such conduct forced merchants to pay excessive fees for accepting MasterCard and Visa cards.
The Class
Class action lawsuits are used when a large number of plaintiffs have claims or when claims are being made against a large number of defendants. Usually the plaintiffs or defendants are located in multiple states. The plaintiffs bring suit on behalf of a proposed class of plaintiffs. For the case to move forward as a class action the court must agree that the members of the proposed class have suffered a common injury or injuries, typically resulting from an action on the part of a business or a particular product defect or policy that applied to all proposed class members in a typical manner. The court must also be convinced that the initial plaintiffs have t he capacity and resources necessary to represent the class as a whole. If the court agrees, the class is certified and the initial plaintiffs are authorized by the court to act on behalf of all members of the class.
The initial plaintiffs are required, however, to provide all prospective members of the class notice of their individual rights throughout the case. One particularly important right afforded prospective class members is the right to “opt out” of the class action and bring their own lawsuits against the same defendants. Typically, if a prospective class member does not affirmatively opt out of the class they will be bound by the results of the class action lawsuit. If someone does opt out, however, they will be bound by the results of their independent lawsuit. You cannot opt out of a class action and then opt back in if your individual case is not successful.
You received the Notice because…?
The parties have, after seven years of extensive litigation (more than 50 million pages of documents were reviewed and over 400 witnesses were deposed) decided that a settlement is in the best interests of both the class and the defendants. A settlement does not mean that Visa and MasterCard admit any wrong doing. Settling the case means the defendants avoid the risk of a judgment that they must pay more than the settled amount; plaintiffs avoid the risk of a judgment for less money. The settlement has not yet been approved by the court. Before that court will decide whether to accept the settlement the members of the class must be notified of their rights under the proposed settlement and given the option to opt out.
The records of Visa, Mastercard and the bank defendants show that you are probably a person, business or other entity that accepted Visa-Branded cards and/or MasterCard branded cards in the United States anytime from January 1, 2004 through November 28, 2012. This makes you a member of the class, if you decide not to opt out.
What are the benefits to the class from the settlement?
The settlement provides two categories of benefits to class members: 1) a cash settlement and 2) changes in the rules and practices Visa and MasterCard can impose and enforce on class members who continue to accept Visa and/or MasterCard.
The cash benefit portion of the proposed settlement requires Visa, MasterCard and defendant banks to establish two funds from which class members may be paid. Combined, the two funds total just over seven billion dollars. These funds will be used to pay money awards directly to class members, pay for the cost of administering the settlement (if approved by the court) and to cover attorney’s fees and expenses. A portion of the funds (approximately $1.5 billion dollars) will be held back to cover claims of merchants who chose to opt out of the settlement and proceed in court with individual claims.
The expectation is that merchants will receive an amount equal to actual or estimated interchange fees paid on Visa and MasterCard transactions for the period of January 1, 2004 through November 28, 2012. The interchange fund provides payment (equal to 1/10 of 1% of credit card transaction volume) to merchants who accept Visa and MasterCard during an eight month period starting June 29, 2013.
The actual amount received, however, will be affected by the total value of all valid claims filed, costs of administration and attorney’s fees and expenses approved by the court. Details of how claims will be calculated are expected to be available as of April 11, 2013.
The rule changes, if approved by the Court, will become effective no later than January 27, 2013. Under the new rules, merchants will be able to charge an extra fee to customers who use Visa or MasterCard branded credit cards, may offer discounts at the point of sale to customers who do not pay with MasterCard or Visa. Merchants who operate under different trade names at more than one location will no longer be required to accept MasterCard and Visa at all of those locations. (If operating under one trade name the rule will still be that Visa and MasterCard must be accepted at all locations or none.) Merchants will still be allowed to set a $10 minimum purchase for Visa and MasterCard.
How Do you make a claim?
The Court first has to approve the proposed settlement. If approved, you will eventually have to file a valid claim in order to get payment from the settlement. If you have not opted out of the settlement the claim form will be mailed to you. It will also be available at www.PaymentCardSettlment.com. Class members with more than one location or franchise may fill out (but are not required to) a pre-registration form which is available at the website.
A “Fairness Hearing” at which the Court will hear arguments as to why the proposed settlement is or is not fair is scheduled for September 12, 2013. How long it will take the Court to decide whether or not to accept the proposed settlement is unknown. The result is that it will be several months before a claim form will be available. In the meantime it is advisable for merchants to pull together information that supports the amount of their claim.
What if I don’t like the proposed settlement?
You have two options: 1) you can object to the settlement and 2) you can opt out.
To object to the settlement you must file a Statement of Objections with the U.S. District Court for the Eastern District of New York. A copy of your statement must also be sent to counsel for both the plaintiffs and the defendants. Your statement must ne postmarked no later than May 28, 2013. Refer to pages 12 and 13 of the Notice for additional information.
How do you opt out?
You can only opt out of the cash settlement class. The proposed rule changes, if accepted by the court, cannot be opted out of and will apply to all merchants accepting MasterCard and Visa branded cards.
To opt out you must send a letter to the address specified in the Notice. First class mail is acceptable; you cannot opt out by phone, fax, email or online. You should keep a copy of your letter for your records. The letter must provide identifying information about the merchant (including the merchant’s taxpayer i.d. number), specifically state that you wish to opt out of the “cash settlement class in the case called In Re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation.” Refer to the Notice (pages 11 and 12 for the information that must be included in your opt out letter.)
Your letter must be postmarked no later than May 28, 2013. If your letter is postmarked after that date it will be considered invalid. You will be bound by the terms of the settlement but you will also remain a member of the Cash Settlement Class entitled to payment. If you file your opt out letter on time you will not be eligible for payment under the terms of the class. You then have the right to bring claims against the Defendants on an individual basis.
What if you do nothing?
If you don’t file a claim form, object to the settlement or opt out you will not receive payment. You will be bound, however, by the terms of the cash settlement. All merchants, whether they file a claim, object or opt out will be bound by the proposed rule changes, assuming the court approves the settlement.
Where can I get more information?
Contact information, copies of the proposed settlement and a list of important dates can be found at www.PaymentCardSettlement.com