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Originally published July 14, 2012 at 10:47 AM | Page modified July 14, 2012 at 10:51 AM

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Retailers' victory on 'swipe fees' may cost credit users

MasterCard, Visa and major banks, including JPMorgan Chase, Bank of America and Wells Fargo, agreed to pay more than $6 billion to settle accusations they engaged in anti-competitive practices in payment processing.

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Retailers will be able to charge customers more for paying with credit cards under the terms of a multibillion-dollar settlement announced Friday.

MasterCard, Visa and major banks, including JPMorgan Chase, Bank of America and Wells Fargo, agreed to pay more than $6 billion to settle accusations they engaged in anti-competitive practices in payment processing.

The settlement, called by lawyers involved in the case the largest antitrust settlement in U.S. history, is the culmination of a lawsuit brought in federal court on behalf of roughly 7 million merchants in 2005. Merchants said the companies engaged in price-fixing to charge high fees for processing credit- and debit-card payments.

In addition, merchants said, payment processors unfairly banned stores from compelling customers to use cheaper methods of payments such as cash and checks.

A judge must approve the accord.

According to the National Retail Federation, the nation's largest retail group, credit-card swipe fees cost retailers about $30 billion per year.

"Our decision to settle is based on our belief that MasterCard and our stakeholders are best served by an amicable resolution," Noah Hanft, MasterCard's general counsel, said in a statement.

Joseph Saunders, chief executive of Visa, reiterated that the settlement was in the best interest of all the parties. Together, MasterCard and Visa have agreed to pay $5.2 billion.

As part of the settlement, MasterCard and Visa also agreed to reduce the charge to process transactions for eight months. That reprieve is estimated by the plaintiffs to be worth $1.2 billion.

"We think this is a historic victory," said K. Craig Wildfang, a lawyer with Robins, Kaplan, Miller & Ciresi who represented the plaintiffs in the lawsuit.

The retailers battling the card giants include Kroger, Safeway and Walgreens.

Retailers last year won another victory over what financial firms can charge them when customers use a different form of plastic, the debit card.

Under the Dodd-Frank financial-overhaul law, banks had to reduce "swipe fees" they collect from merchants each time a customer makes a purchase with a debit card.

Under the credit-card settlement Friday, worked out over months of negotiations, merchants can charge higher prices to consumers who decide to pay for purchases with credit cards.

Card companies long have defended their fees, which average about 2 percent of the price of a purchase, depending on the types of stores and card issues.

They say stores benefit from being able to accept credit and debit cards from customers, who often spend more when they're using plastic instead of cash or checks.

Until now, card companies banned merchants from adding a surcharge, although gas stations and other retailers sometimes offer a discount for customers who pay in cash.

Few big national retailers would be willing to apply credit-card surcharges because making one form of payment more expensive than others would impede the spending of consumers already struggling through a weak economic recovery, said Paul Swinand, an analyst for Morningstar in Chicago.

"The risk of ticking off the customer would keep most big national companies from doing it," Swinand said.

Consumers who use credit also spend more, especially on high-priced items such as electronics and jewelry.

But the possibility of a new revenue stream may be too much for some merchants to pass up.

In industries with less competition, such as airlines, adding surcharges may be easier, said Russell Walker of Northwestern University's Kellogg School of Management.

The American Bankers Association said in a statement that while the banks "may not like all the results in this case, our industry is ready to put this matter behind us."

Frank Keating, the association's president, said: "Let's be clear — retailers, not consumers, benefit from today's resolution."

Information from Bloomberg News was included in this report.

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