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Visa to Settle Suit Filed by Retailers

The credit company would pay $2 billion and avoid a trial over debit cards in a deal similar to MasterCard's.

May 01, 2003|Chaka Ferguson | Associated Press

NEW YORK — Visa USA Inc. reached a tentative $2-billion settlement Wednesday with thousands of retailers, averting a trial over the company's popular debit cards, a source close to the talks said late Wednesday.

The terms of the deal, which was not yet signed, are similar to those agreed to Monday between the retailers and MasterCard International, the source said on condition of anonymity.

Word of the settlement came after U.S. District Judge John Gleeson in Brooklyn, N.Y., postponed opening statements in the trial until Friday, saying he hoped he was offering "breathing room" so they could make a deal.

The $2-billion deal, which still must be approved by the judge, includes an immediate $25-million payment to retailers, the source said.

Visa also has agreed to change the way it assesses transaction fees and will end its "honor all cards" policy, the source said.

The retailers, which include Wal-Mart Stores Inc. and Sears, Roebuck & Co., claim both big card companies have trapped them into paying high fees by demanding that stores that accept their credit cards also accept their debit cards. They also claim the companies have stifled competition.

The merchants were expected to sign the deal Wednesday night, the source said.

In a statement, Visa said it had reached an "important agreement in principle" with the retailers.

Visa and MasterCard say the "honor all cards" policy is important for giving consumers more choice. But retailers, who filed suit seven years ago, contend the policy ultimately costs consumers more money.

The debit cards use a customer's signature to verify a transaction. Many merchants would rather use less-expensive, independent networks that clear debit card transactions using a personal identification number, or PIN.

Analysts said Visa was probably feeling intense pressure to settle the case rather than face a trial that threatens to drag well into summer -- a trial that could be more difficult without MasterCard fighting alongside.

If the merchants prevailed, Visa would have been liable for damages running into the tens of billions of dollars.

The framework of the MasterCard settlement calls for that company to pay roughly $1 billion to the retailers and to reduce its debit card fees, a source close to the talks, speaking on condition of anonymity, told Associated Press.

Details of the MasterCard settlement are expected to be finalized in the next few days and presented to the judge for approval within a few weeks, said Lloyd Constantine, lead lawyer for the retailers.

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