Facing an antitrust lawsuit of a size that’s never been seen before, MasterCard is battening down its hatches – to the tune of half a billion dollars.
If you haven’t been following the news – or our awesome infographics – MasterCard, Visa and 13 Wall Street banks are currently being sued by five million individual retailers across the country in what amounts to the largest antitrust lawsuit in history.
As reported by CBS , MasterCard charged $495 million dollars of its fourth-quarter profits earlier this month to cover what it believes it would owe in the event of a settlement. According to a company spokesman, the company believes it would actually be liable for $770 million and that the money they’ve secured would just be the final total after taxes.
“Based on what the discussions are as of last night, I had to make a judgment,” said Chief Financial Officer Martina Hund-Mejean in an interview. “This is not the low end of the range, this is our best estimate of what kind of loss MasterCard might incur.”
The plaintiffs, including Kroger, Safeway, Rite Aid and Walgreen’s, argue that starting in 2005 the credit card companies and banks engaged in a price-fixing scheme which overcharged stores that processed credit cards by over $19 billion a year. According to the prosecuting attorneys, America’s retailers were being forced to hand over 2% of every credit card transaction they made to the defendants when the rate should really have been as low as .5%. Most egregiously, the merchants claim that the card companies outright banned them from encouraging customers to seek a cheaper form of payment.
MasterCard’s hastiness to give up 95% of what they earned in the fourth quarter may actually do the company more harm than good. The judge presiding over the case, which is set to go to trial in September, has a track record of siding against Wall Street and the financial industry in these sorts of lawsuits. In fact, in a 1996 lawsuit he found MasterCard and Visa guilty for running the same fixing scheme, but with debit cards. He forced the companies to shell out $3 billion in damages. Considering these circumstances, it’s very possible that the plaintiffs in this lawsuit could read the settlement as an admission of guilt and choose to proceed to trial.
While we, like many people, would like to see Wall Street punished for its crimes, a settlement would actually be in consumers’ best interests. As the fallout from the Durbin Amendment proved, banks have no qualms about using their own customers to recoup their losses. When the government put a cap on the amount that card companies and banks could charge merchants for debit card transactions, Wall Street responded by instituting a flurry of new banking fees that citizens – not institutions – had to pay.
Until more defendants announce settlement plans, there’s no way of telling exactly how this lawsuit will end up. Be sure to check back weekly for the latest developments in the case, and remember that you can always count on CreditCardAssist to lead the way in news and information regarding credit and personal finance.
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