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First Data Could Scuttle Interchange Settlement

May 28th, 2013

In its filing, First Data says it is “not here by choice. Non-merchant entities like FDC are nothing like the retail merchant plaintiffs. They are not in the business of accepting credit cards, and to the extent they do accept them it is incidental to their core business. As is shown below, FDC and its affiliates generate less than half a percent of their revenues on credit card transactions. Indeed, some of their acceptance of credit cards relates to employees buying lunch in the company cafeteria, paying for shipping services in the company mailroom, or making charitable donations to the company’s charitable foundation.”

First Data, the filing continues, “was thrust into this case by virtue of an overly broad class definition” and “a release that could forever bar it from questioning hundreds upon hundreds of rules and regulations that affect more than half of its multi-billion dollar business. The settlement could eliminate all future antitrust and other claims FDC and its affiliates might have against defendants, depriving them of due process.”

The filing goes on to offer examples of what the card brands might do to First Data if the processor has no legal recourse—such as effectively blackballing First Data’s STAR PIN-debit network, which competes directly with Visa’s Interlink. “Waiver of all future antitrust claims against Visa and MasterCard—which is what the releases amount to—means something very different for FDC than it does for the merchant class members,” First Data argues.

And First Data argues that it was never properly represented by the lawyers who designed the settlement on the merchants’ side, and that even if barring conventional retailers from future antitrust suits against Visa and MasterCard is a good idea, it will block First Data from a much larger set of potential claims.

Can this settlement be saved? U.S. District Judge John Gleeson could change the settlement to specifically exclude First Data, but that might open the door to new claims, or to demands that the clock be reset for conventional retailers to opt out of the settlement since it had changed. Or Judge Gleeson could decide not to act, which could lead to an appeal on constitutional grounds, since First Data has raised the issue of due process.

And these issues—whether the definition of “merchants” is too broad and whether those affected by the settlement were properly represented—are completely separate from the antitrust issues that the freshly launched Visa and Target lawsuits are

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about. Even if those can be resolved by September (and they probably can’t), they won’t resolve the problems First Data raised.

That means the interchange settlement fight has shifted from “Who’s on board?” to “Can this settlement actually go forward at all without violating the Constitution?” That’s a very bad sign for the settlement in its current version—and for the possibility that there are still more unintended consequences buried in the settlement, too.


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Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
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The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
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