Evan Schuman's StorefrontBacktalk

In a last-minute interchange settlement objection filed on Tuesday (May 28), Walmart (NYSE:WMT) and more than 60 other retailers described the proposed settlement as worse than actually losing the case. The settlement will block future lawsuits over any Visa (NYSE:V) or MasterCard (NYSE:MA) rules, practices or actions—and that includes PCI and breach penalties.

That goes far beyond the original lawsuit, which only covered default interchange rules, honor-all-cards rules and anti-steering rules. If the case went to trial and lost every claim, that would still just lock in the card brands’ control of interchange and card-acceptance rules. But the proposed settlement would go far beyond that, which makes the settlement illegal, Walmart’s brief argues.

“This proposed settlement is worse for the class than losing,” the filing says. “They are being compelled to accept a release that purports to forever limit their ability to challenge any Visa or MasterCard rule in effect as of preliminary approval, as well as substantially similar future rules and future conduct, including ongoing and future damages claims. Had defendants prevailed at summary judgment or trial, the res judicata effect of such a ruling never could have covered the entirety of Visa’s and MasterCard’s rulebooks, or claims concerning future rules and conduct. Nor would it have covered ongoing or future damages claims of class members.”

The biggest area that would hit most retail IT operations is PCI and breach penalties. Under the settlement, all existing Visa and MasterCard rules get an exemption from future legal challenges—and “rules” are defined as “any rule, by-law, policy, standard, guideline, operating regulation, practice, procedure, activity, or course of conduct.” Merchants aren’t allowed to even see all the rules that are written down. The ones that are just practices or “courses of conduct”—documented or not—get a free pass from the settlement.

That means Visa’s and MasterCard’s already questionable (and sometimes questioned in court) practices for deciding how much to penalize a chain for a breach could no longer be challenged in court, even if a card brand clearly puts blame in the wrong place or hits different retailers with wildly inconsistent breach fines.

It also would put the card brands in the position of being able to change the interpretation of PCI requirements at will and overrule QSAs’ determinations about compensating controls. And it would cement the de facto Visa and MasterCard policy of retroactively declaring breach victims non-compliant with PCI, even if the retailer followed PCI requirements to the letter.

And those card-brand policies, bad habits and ethical lapses would apply to anyone who accepts Visa or MasterCard—right down to Square users.