Opt-Out Litigation Settlement Against Visa and MasterCard: Clarity for a Supplier’s Right to Surcharge?, by Scott Blakeley, esq.

Customers using credit cards to pay suppliers’ invoices continue to increase, whether driven by principal’s self-interest in points miles, corporate customer’s interest in improving cash flow through additional float, or card networks pressuring customers to use cards to pay suppliers.

But credit cards are the most expensive payment channel because the interchange fees imposed by card companies erode the profitability of the sale.

While the strategy of surcharging is attractive for suppliers to offset the majority of this expense, suppliers are challenged to adopt the recently minted right-to-surcharge given the uncertainty surrounding all of the credit card litigation, especially the litigation pursued by national retailers against the card networks. The recent settlement between CVS and Visa and MasterCard may provide further clarity and comfort that card litigation will not bar supplier’s rolling out a surcharge.

Historically, the credit card networks (Visa, MasterCard and AmEx) have prohibited suppliers from surcharging customers. In 2004, several national retailers and trade associations (including the national drug store chain CVS Pharmacy) filed multiple lawsuits against Visa and MasterCard, accusing the card companies of conspiring to fix artificially-high interchange fees in violation of the Sherman Antitrust Act. The suits were consolidated and certified as a class in the U.S. District Court. After eight years of litigation, a federal judge in New York gave final approval of the Visa/MasterCard class action settlement. Under the class action rules, class claimants, primarily retailers, were given the option to either opt in or opt out of the class and the corresponding settlement with the card companies.

A number of retailers, including CVS Pharmacy, opted out of settlement, complaining it was not adequate. In particular, the retailers noted they would not surcharge their customers, consumers, as they would lose business.

In early 2014, CVS, and several other retailers, filed suit against Visa and MasterCard asserting similar accusations as the previous suit. CVS and Visa and MasterCard have settled their litigation.

What Does the CVS Settlement Mean for Suppliers’ Ability to Surcharge?

For suppliers seeking indicators that their right to surcharge is cemented, given all of the retailer litigation against Visa and MasterCard challenging their interchange pricing, the CVS settlement provides some certainty and guidance. It is expected that CVS is the first of many national retailers that will settle with Visa and MasterCard. These settlements reaffirm that Visa and MasterCard are determined to resolve the interchange pricing litigation which ensures that the supplier’s newly minted right to surcharge sticks.

Scott Blakeley, Esq., is a founder of BlakeleyLLP, where he advises companies around the United States and Canada regarding creditors’ rights, commercial law, e-commerce and bankruptcy law. He can be reached at seb@blakeleyllp.com.

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