Two major retailers have bucked from the trend to announce their position against a recent settlement against credit card companies. The settlement for $6 billion in damages is to pay for aggressive pricing on credit card company's merchant fees, also known as swipe fees.
The case was brought about by other retailers, specifically Home Depot, which say that credit processing fees are the third-largest cost of business behind retail leases and employee compensation. Reducing the credit card industry’s haul from payment processing would allow retailers to pass on savings to shoppers, and higher pay to their hundreds of thousands of employees.
The Backlash
Both Walmart and Target – normally competitors who work against each other rather than with each other – say that the new settlement will reduce the power of retail giants to negotiate in the future. If the settlement is upheld, the credit card industry will have the power to enforce contracts with less negotiation in the future. Also, the power for credit card processors to continue charging higher fees in the future is left unchecked – the settlement calls for a simple one-time payment to the opposing parties.
Some have questioned how the new credit card fees would come into effect. In the settlement, retailers win the right to pass on high processing fees to consumers, effectively charging people more money when they use a credit card instead of cash. Doing so may be commercially unpopular as few people wish to use a credit card if the end result is higher prices.
Even still, as many as 10 states (including the largest state by economic output, California) have state statutes that forbid retailers for charging higher prices to people who use credit cards. So, enacting and enforcing an additional fee for users may be challenging for retailers.
The settlement is anything but settled. Over the next month, the Federal courts in Brooklyn, New York will investigate the details and rule on whether or not the settlement and the terms of the settlement are appropriate.