Visa, MasterCard

A class action lawsuit brought on behalf of 7 million US merchants against Visa, MasterCard, and several large banks has reached a settlement. All together, the defendants agreed to forfeit $7.25 billion as a result of settlement negotiations. Visa agreed to forfeit $4.4 billion, while MasterCard got off with a mere $790 million forfeiture. JP Morgan, a large investment bank, is on the hook for $6.05 billion.

The lawsuit alleged that Visa and MasterCard conspired with the nation’s largest banks to unlawfully fix swipe fees for merchants. Swipe fees are fees that retailers must pay to credit card companies each time they swipe a customer’s card at the counter. As part of the settlement, the credit card companies must reduce their swipe fees by a total of around $1.2 billion. As soon as 2013, retailers will be able to impose a surcharge for credit transactions. Also, merchant groups (such as the association of drug store chains) will be able to collectively negotiate swipe fees with the credit card companies.

All these measures are intended to combat the price fixing of swipe fees for retail vendors. By colluding to fix the swipe fee, Visa and MasterCard made it unnecessary for themselves to have to compete on the basis of price. By reducing competition, they were able to charge a higher swipe fee, and merchants had no options but to pay up. By allowing collective bargaining on behalf of merchant groups regarding swipe fees, the EU hopes to take some of the control over price away from the credit card companies charging the fees.