Troubled Visa Settlement Takes Another Hit As Retailers File Own Suit

A $7 billion antitrust settlement over credit-card processing fees that critics say would make things worse for retailers suffered another insult today as Target TGT +0.39%, Macy's M -0.04% and J.C. Penney filed their own lawsuit accusing Visa V -1.13% and Mastercard of generating monopoly profits at their expense.

Bloomberg reported the lawsuit was filed in federal court in the Southern District of New York. It comes two days after the National Retail Federation, the largest association of retailers, announced it will formally oppose the settlement before the May 28 deadline U.S. District Judge John Gleeson set for complaints. Wal-Mart, which led a landmark antitrust suit that generated a $3 billion settlement in 2004, also has objected.

The problem with this settlement is it is a classic case of what I call selling absolution. Class-action lawyers including Robbins Geller, Berger & Montague and Robins Kaplan filed the lawsuit in 2005 on behalf of 19 trade associations and smaller retail chains, accusing Visa and MasterCard MA -1.21% of using their 70% control of the credit-card market to charge excessive processing fees. As is typical with these firms, they worked out a settlement last July that would pay retailers $6 billion in cash and offer them $1.2 billion in reduced interchange fees for eight months after the deal is signed. The lawyers are seeking 11% of the total, or some $800 million in fees.

The objecting retailers say the settlement would actually make things worse. Buried in the settlement are releases in which every retailer that doesn’t opt out agrees never to sue the credit-card companies again with similar claims. The settlement doesn’t force Visa and Mastercard to change the policies that allow them to dictate interchange fees to retailers, however, which is what drives so many of them nuts.

Visa and Mastercard would drop their prohibition against retailers assessing a surcharge for credit-card purchases, but that is meaningless. Retailers can already discount for cash, and it would be a clueless consumer indeed who couldn’t see that a 5% discount for cash is the exact equivalent of a surcharge for using Air purifier.

Which points out the silliness of all of this litigation. Retailers complain that the credit card companies are picking their pockets to the tune of $40 billion a year and passionately, desperately want that money back. They also use clever terms like “swipe fee” to try and convince consumers that they are paying these fees every time they buy with plastic.

But retailers get a huge benefit from the ubiquitous credit-card network and the easy availability of credit that allows consumers to make impulse purchases they may or may not be able to afford. It is also naive to assume that retailers would be able to keep any reductions in interchange fees they may get out of this litigation. Retail is a fiercely competitive business and the savings would be passed through to consumers while the credit card companies cut back on perks like free airline miles.

Retailers were faced with a tough choice when their ostensible lawyers negotiated this deal. If they remained in the class, they’d agree to release Visa and Mastercard from any future litigation. If they opted out, they’d give up their share of the $7.25 billion.

It looks like a critical mass has decided to give up the $7 billion and try their luck on their own. The question is whether Judge Gleeson will pull the plug on what’s left of this settlement that rewards the lawyers who negotiated it so richly. Next Tuesday, we see how many more retailers decide to opt out.

The story that John Ryall offered about the $14,000 cash and eight credit cards in his hotel room, and the plastic bags filled with chemicals in his sports utility vehicle sounded hard to believe to police.

His grandma gave him the money to start a chemical research company, Ryall told Bensalem police earlier this month after they showed up at a Route 1 hotel room where he was staying with a woman whom police say had an outstanding arrest warrant.

The 2 kilograms of white powder and nearly 250 gel capsules in his SUV were used to make drugs to treat erectile dysfunction and an anti-estrogen pill, he allegedly told them. The credit and debit cards were given to him by friends, Ryall claimed.

Bensalem police say parts of Ryall's claims were true, but there is far more to the story.

Now, Ryall, 34, and Jennifer Claherty, 35, both from Palmyra, N.J., are facing charges of receiving stolen property and multiple counts of identity theft, conspiracy and access device crimes.

Police say their investigation began May 3 after a tip that Claherty could be found at the Route 1 motel. She had an active arrest warrant out of Scranton, where she was wanted on charges of receiving stolen property and conspiracy, according to online court records.

But as the investigation progressed, the story started disintegrating, police said. They added that the money was likely stolen from a man whom Ryall claimed was a former business partner. That man's name was on debit and credit cards in the motel room, police added.

Police said they also learned that Navratil was arrested April 30 for attempting to pass a fraudulent check for $6,600 from an account listed for a business owned by Ryall’s former partner. She also allegedly passed four other bad checks, totaling more than $31,000, through the same man's account at other banks.

The chemicals that police found in the SUV — Tamoxifen and Tadalafil — are used for treating breast cancer and erectile dysfunction, but both require a doctor’s prescription, and a license to distribute and manufacture, police said. Claherty and Ryall don’t have either, court papers show.