CONSTANTINE CANNON - NACS · PDF fileCase 1:05-md-01720-JG-JO Document 1615 Filed 08/13/12...

CONSTANTINE CANNON

Jeffrey i. ShinderAttorney at Law2 i 2-350-2709jshinder(iconstantinecannon .com

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August 8, 2012

FILED UNDER SEAL

BY ECF

Hon. James OrensteinUnited States District CourtEastern District of New York225 Cadman Plaza EastBrooklyn, NY 11201

Re: In re Payment Card Interchange Fee and Merchant Discount Antitrust

Litif!ation, MDL No. 05-1720

Dear Judge Orenstein:

We represent Class Representative National Association of Convenience Stores (NACS)and several other Class Representatives in this matter. i We respectfully write in advance oftomorrow's status conference, to request that the Court address a particular issue and to respondto Class Counsel's accusations in their August 7,2012 letter to the Court regarding NACS' publicstatements about the proposed settlement.

Class Counsel's Continuin2 Refusal To Provide NACS With Necessarv Information

Pursuant to Your Honor's July 25,2012 Order, we respectfully renew our request for anorder that Class Counsel provide NACS with access to drafts of settlement materials and ameaningful opportunity to comment before sending them to defendants or the Court, and othernecessary information. Since that Order, we have attempted to engage Counsel in a dialogueregarding reasonable protocols that would address their legitimate privilege concerns whileassuring adequate infonnation flow to NACS. In that regard, we reiterated our amenability to atwo-tiered arrangement whereby Class Counsel and any Class Representatives who choose tosupport the proposed settlement would have a zone of privilege separate from NACS and otherRepresentatives who oppose it. Class Counsel declined such a dialogue. Further, their August 7letter confirmed that they have sent draft settlement materials to defendants without providing

We also represent the National Grocers Association, the National Community Pharmacists Association, andthe National Cooperative Grocers Association.

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Hon. James OrensteinAugust 8, 2012

them to NACS. Late this afternoon, Class Counsel confirmed that we are at impasse on thisissue. We respectfully request that the Court address it at tomorrow's conference.

Class Counsel's Accusations Re2ardin2 NACS' Statements About The Settlement

Class Counsel's accusations regarding NACS' public statements about the proposedsettlement are wholly unfounded. They amount to nothing more than an effort to silenceopposition to the settlement. First, Class Counsel's suggestion that NACS in any way violated itsobligations under the mediation process is without merit. Implying that NACS (and the otherClass Representatives who oppose the settlement) committed to support the outcome of themediation no matter what is untenable.

Against that backdrop, there is nothinguntoward about continuing discussion among Class Representatives concerning the merits, orlack thereof, of the proposed deaL.

Second, Class Counsel fares no better with its suggestion that NACS is somehow leadingthe other plaintiffs and absent class members by the nose in opposing the settlement. If anything,that suggestion grossly underestimates the growing chorus of opposition to the settlement.Besides the entities identified in Counsel's letter, at least 38 additional retailers and 8 additionaltrade associations have publicly opposed the settlement. Each of the Class Representative tradeassociations that have elected to oppose the deal - including those whom Class Counsel claimsNACS "solicited," "lobbied" and "exhorted" - has its own board of directors comprised of absentclass members, who unanimously voted against the deaL. Indeed, the sentiment against this dealcontinues to grow, with Senator Richard Durbin, the second-ranking Democrat in the Senate anda longtime critic of interchange, recently voicing his vigorous opposition.2

Third, the proponents of this deal have "orchestrated an extrajudicial publicity campaign"that is far more extensive than anything NACS has done. For example, Class Counsel points toNACS' July 16 press release as an example of inappropriate "lobbying" of "other merchants andthe proposed class representatives to reject the settlement." But each of Class Counsel's threepress releases issued July 13 - minutes after they fied the proposed settlement - likewiselobbied merchants and class representatives, only to support the settlement. They trumpeted thesettlement as a "landmark" that provided "billions of dollars to retailers" and "significant reformsof Visa and MasterCard rules." (Ex. B) And though Class Counsel faults NACS for omittingfrom its press release "any reference to the positive aspects of the proposed settlement and thesubstantial risks (in) abandoning the settlement," Class Counsel omits from their three press

Senator Durbin's August 2,2012 remarks include that "this proposed settlement. . . (is) a bad deal formerchants and for consumers" and "the free pass Visa and MasterCard would get under (it) is breathtaking." (Ex. A)

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releases any reference to the numerous negative aspects of the settlement. In particular, theymake no mention of the sweeping, forward-looking release that explicitly precludes virtally anychallenge to any Visa/MasterCard rule, for all time, even by future merchants. And they neglectto note the inability to opt out of the injunctive relief, which compels absent members to bebound by a deal that fails to address the core price-fixing at issue, while validating, and ensuringthe perpetuity of, that price-fixing (and other conduct). If anyone has engaged in "misleading,biased and incomplete" statements it is the proponents of this deal, not NACS.

Class Counsel has also made statements that inappropriately pre-suppose the outcome ofthe court-supervised approval process, and that improperly question the merits of class claimsstill pending before the Court. For example (Ex. C):

· There is "no realistic opportnity for a better outcome even after more litigation."

· "(TJhere is (notJ much chance that the settlement will not go through(.J"

. "There are a lot of risks if this case were tried, and then went to appeal, whether

(merchants J would get a result as good as what we've obtained in this settlement, (0 Jrwhether they would get any results at alL."

Class Counsel also points to NACS' "memorandum to Congress" as an untoward effort"to enlist (Congress'J assistance in undermining the settlement." But proponents of thesettlement have also sought Congress' assistance, in pushing the settlement through. Forexample, the Electronic Payments Coalition, largely driven by Visa and MasterCard, distributedto Congress "F AQs" to help them "better understand the settlement(.J" (Ex. D) Like ClassCounsel, the F AQs opine that "it seems unlikely that the Judge. . . would now find thesettlement agreed upon by nearly everyone involved. . . to be unfair or inadequate upon judicialreview. "

Moreover, unlike NACS' statements, the F AQs misrepresent facts. In particular, theyincorrectly state that the settlement is "a final and binding agreement"; that it "became (soJ onJuly 13 via the signatures of all of the court appointed class counsel"; and that "(tJhose whosigned the final a reement are now com elled, throu h their si natures, to ask for the judge toa rove it."

And they representedthis to the Court: The July 13 MOU states that any "binding obligation to enter into" thesettlement is "subject to (among other thingsJ approvals of the Definitive Settlement Agreementby the board of directors. . . of any party(.J" (Dkt 1588)

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Class Counsel's claim that they do not "want to abridge anyone's First Amendmentrights" is belied by their letter. It is obvious that they want to abridge First Amendment rights -but only ofNACS and everyone who opposes the proposed settlement. While we take issue withmuch of what Class Counsel and the other proponents ofthe deal are saying publicly, we do notchallenge their right to say it. Given the complexity of the proposed settlement and thesignificant issues it raises for the merchant community, a vigorous debate of the issues is healthyfor all concerned. At the end of the day that debate wil redound to the benefit of the court-supervised process that will ultimately determine the merits, or lack thereof, of this deaL. 3

Respectfully,

ßÇf :Ç. SL~.~ l€C-/Jeffrey 1. siinder

Attachments

cc: All counsel of record

The cases Class Counsel cites in their letter are inapposite. They involve either defendants' encouragementof class members to sign releases or arbitTation clauses (Hinds County and In re Currency Conversion Fee), orcommunications relating to matters specifically excluded from the court-approved notice (Erhardt), orcommunications that interfered with an approved settlement agreement and plan of allocation of settlement funds (Inre Visa Check). None of them involve efforts such as Class Counsel's, to suppress a plaintiffs First Amendmentright to voice its legitimate concerns about a settlement. Class Counsel has made no showing, let alone the clear onethe cases they cite require, that NACS' communications are in any way improper or abusive.

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EXHIBIT A


CONGRESSIONAL RECORD — SENATES5960 August 2, 2012 Here is how it works. LIBOR is calculated for 10 currencies

and 15 maturities. For example, one of

the most important LIBOR rates is the

3-month dollar LIBOR. A select panel of 18 major banks re-

port how much they believe it would

cost to borrow money in dollars for 3

months at 11 a.m. on a particular day. The top four estimates and bottom

four estimates are discarded, and the

remaining rates are averaged to cal-

culate LIBOR. LIBOR is published

every day at 11 a.m., and companies

across the world use this rate to set in-

terest rates for consumers. So why would the major banks want

to manipulate LIBOR? The simple answer is profit. And

greed. Many of the major banks that help

set LIBOR stand to lose or gain mil-

lions of dollars each day based on the

smallest change in LIBOR. As the leading trader of derivatives

in 2007, it has been estimated that

Barclays stood to lose or gain $40 mil-

lion per day. The settlement between regulators

and Barclays lays bare a scenario

where traders not only regularly at-

tempted to manipulate LIBOR, but

they didn’t even try to hide it. Once the financial crisis hit in 2008,

manipulating LIBOR was also about

survival. Banks were under intense scrutiny. If

it cost a bank more to borrow money,

it could be an indicator that other

banks thought lending to the bank was

risky. In Barclays’ settlement with regu-

lators the bank admitted that it under-

reported the cost of borrowing during

the financial crisis to mislead regu-

lators and the public about the true fi-

nancial health of the firm. Unfortunately, it seems as if the

Barclays settlement is just the tip of

the iceberg. Lawsuits worth billions of dollars

have been filed against banks alleging

wrongdoing. Regulators in the U.S.,

Canada, Japan, EU, Switzerland, and

Britain are reportedly investigating. U.S. regulators should be fully en-

gaged in investigating the LIBOR proc-

ess and any wrongdoing by U.S. banks. However, U.S. financial regulators

can’t conduct the necessary investiga-

tions into claims of wrongdoing or en-

force new laws meant to rein in Wall

Street if they don’t have the people,

software, and resources necessary to do

the work. Congress passed Wall Street reform

because the largest financial institu-

tions in this country took advantage of

loopholes and the unregulated swap

markets. They drove our country into the

worst economic recession in our life-

time. In the aftermath, we said we are not

going down that road again. No more

too big to fail, no more bailouts. We

are going to have transparency and ac-

countability when it comes to swaps.

We gave the job to the Commodity Futures Trading Commission and the Securities and Exchange Commission.

With the recent approval of final rules defining swaps, the CFTC and the SEC have now triggered the implemen-tation of an array of other rules to fi-nally bring the swaps market out of the shadows and into the light.

This is a huge step forward. But now, just when the financial reg-

ulators have the rules in place to over-see the $300 trillion market that nearly destroyed our economy, the Repub-

licans are trying to cut the agencies off

at the knees. Their philosophy is if you can’t re-

peal reforms by passing legislation,

you can undermine the agency’s ability

to enforce the law. Let me put this in perspective. The

$37 trillion futures market has histori-

cally been policed by the CFTC. That is

an enormous market to oversee, by

anyone’s calculation. But it pales in comparison to the

complex and previously unregulated

$300 trillion swaps market now under

CFTC’s purview because of Dodd-

Frank. That is eight times the size of

the futures markets. Common sense tells you that it is im-

possible for an agency to increase its

responsibility eight-fold while its re-

sources are cut by 41 percent. Yet, that hasn’t stopped the Repub-

licans in the House. They recently re-

ported out of Committee a bill that

cuts funding requested in the Presi-

dent’s fiscal 2013 budget by $195 million

for the SEC and $128 million for the

CFTC. That’s a 41 percent cut for the CFTC

and a 12 percent cut for the SEC—from

the President’s request. Keep in mind that while Congress

sets the level of funding for the SEC, it

is largely funded through fees on trad-

ing volumes. So the cuts to the SEC

aren’t about concern for saving tax-

payer dollars—it is simply a way to re-

move the regulators’ ability to prop-

erly function. When financial tragedies befall peo-

ple—think of missing customer funds

at MF Global or Peregrine—we want

investigators to find out what hap-

pened and seek recovery of money to

the families and farmers who trusted

those companies. Those are the jobs

the Republicans want to cut. This tells firms such as Peregrine

that while we have laws on the books

they must follow, we aren’t going to

give the regulators the resources to en-

force them. The funding levels for the CFTC and

SEC reported out of the House prom-

ises we will face another situation like

MF Global or Peregrine in the future

because we won’t have enough cops on

the beat. A mere 4 years after the worst finan-

cial crisis in our lifetime and just sev-

eral weeks after the latest scandal

where farmers lost their hard earned

money, this is simply irresponsible. We are still struggling to dig our way

out of a recession that resulted in mil-

lions of jobs lost and $17 trillion of lost

retirement, personal and household

wealth. Yet, instead of working together to

ensure that never happens again, Re-

publicans are doing everything they

can to stop the regulators from imple-

menting laws that would have pre-

vented that crisis and could prevent

the next crisis.

f

DODD-FRANK ANNIVERSARY

Mr. DURBIN. Mr. President, on July

21, we marked the 2-year anniversary

of the Dodd-Frank Wall Street Reform

and Consumer Protection Act. This landmark law has taken impor-

tant steps to rein in the Wall Street

abuses that nearly drove our economy

off the cliff in 2008. Two of its reforms were particularly

important to me. One was the creation

of the Consumer Financial Protection

Bureau- the only agency in the Federal

Government solely dedicated to look-

ing out for consumers’ financial inter-

ests. This agency has already been a game-

changer when it comes to curbing the

tricks in consumer financial products.

It is bringing transparency and fairness

to mortgages, private student loans,

and credit cards. Last week, the CFPB announced its

first ever enforcement action. It di-

rected Capital One to pay about $150

million to more than 2 million con-

sumers who had purchased deceptively

marketed add-on products to their

credit cards. This is a big step forward. It shows

there is a real cop on the beat when it

comes to consumer protection. I am proud of what this agency has

accomplished so far, and I look forward

to seeing it continue its important

work for years to come. Another important provision in the

Wall Street Reform bill was the provi-

sion I drafted to reform debit card

swipe fees. The swipe fee is a fee that a bank re-

ceives from a merchant when the mer-

chant accepts a credit or debit card

that the bank issued. This fee is taken

as a cut of the transaction amount. Now, the vast majority of bank fees

are set in a transparent and competi-

tive market environment, with each

bank setting their own fee rate and

competing over them. That is not the

case with swipe fees. With swipe fees, the big banks de-

cided they would designate the two

giant card companies, Visa and

MasterCard, to set fees for all of them.

That way each bank could get the same

high fee on a card transaction without

having to worry about competition. And swipe fees are anything but

transparent. Most consumers and even

most merchants have no idea what

kind of swipe fee is being charged when

they use a debit or credit card. The swipe fee system became an

enormous money-maker for Visa,

MasterCard, and the banks. They were

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CONGRESSIONAL RECORD — SENATE S5961 August 2, 2012 collecting an estimated $16 billion in

debit swipe fees and $30 billion in credit

fees each year. Those billions are paid by every mer-

chant, charity, university, and govern-

ment agency that accepts payment by

card, and the costs are passed on to

American consumers in the form of

higher prices. By 2010, the U.S. swipe fee system

was growing out of control with no end

in sight. U.S. swipe fee rates had be-

come the highest in the world- far ex-

ceeding the actual costs of conducting

a debit or credit transaction. And there were no market forces

serving to keep fees at a reasonable

level. Merchants and their customers

were being forced to subsidize billions

in windfall fees to the big banks. I stepped in and introduced an

amendment to the Wall Street reform

bill that for the first time placed rea-

sonable regulation over debit swipe

fees. My amendment said that if the Na-

tion’s biggest banks are going to let

Visa and MasterCard fix swipe fee rates

for them, then the rates must be rea-

sonable and proportional to the cost of

processing a transaction. No more un-

reasonably high debit swipe fees for big

banks. The regulatory steps that my amend-

ment proposed were modest. Most

other countries have gone much fur-

ther in regulating swipe fees. But the banks and the card compa-

nies screamed bloody murder. My amendment passed the Senate

with 64 votes, and it was signed into

law with the rest of Wall Street re-

form. And the swipe fee reforms took

effect last October. As it turns out, debit swipe fee re-

form is working pretty well. So far, reform has led to an esti-

mated $7 to $8 billion in annual debit

swipe fee savings for merchants. That savings is a real shot in the arm

for American businesses that have been

crushed by ever-rising swipe fees. Consumers are also benefiting as sav-

ings are passed along from merchants

through competition. After reform took effect in October,

we saw a massive level of retailer dis-

counting that extended beyond the

usual holiday season discounts. And according to a USA TODAY arti-

cle from May 11, a number of individual

merchants are offering debit card dis-

counts for items such as gas, furniture,

and clothing. This trend is expected to

continue and to grow. Furthermore, the banking industry

had claimed that small banks and cred-

it unions would be hurt by debit swipe

reform- even though all institutions

under $10 billion in assets were exempt-

ed from fee regulation. As it turns out, small banks and

credit unions have thrived since reform

took effect. Why? Because under my amendment,

small banks and credit unions can con-

tinue to receive the same high inter-

change rates from Visa and MasterCard

far higher than the rates that their big bank competitors receive.

In May, the Federal Reserve con-firmed that exempted banks and credit unions were receiving the same average interchange rates they had gotten be-fore reform.

The American Banker newspaper has noted that the ‘‘Small Banks’ Durbin Shield Worked’’ and prominent card in-dustry analyst Andrew Kahr noted that the ‘‘Durbin Doomsday Never Came.’’

Credit unions in particular are doing well after swipe reform. Last year 1.3 million Americans opened new credit union accounts, up from about 600,000 the year before. And credit unions now have a record number of members- al-most 92 million overall.

Now, it is important to note that there should be even more savings from swipe fee reform to merchants and con-sumers.

When the Federal Reserve was writ-

ing its final rule, the banks lobbied

them to weaken the final rule and raise

the debit swipe cap from 12 to 24 cents.

Then Visa and MasterCard promptly

jacked up any swipe fee rates that were

below 24 cents so that this 24 cent ceil-

ing became a floor. Basically, the banks and card compa-

nies lobbied the Fed for a loophole, and

when they got one, they ran through it. This needs to be fixed going forward,

and I am confident it will be fixed. The bottom line, though, is that the

swipe fee reform that Congress enacted

in 2010 has gotten off to a good start. It

is working, and it is laying a solid

foundation for further reforms to im-

prove the credit and debit systems. I am afraid, however, that while

swipe fee reform has made important

strides in Congress, the big banks and

card companies are trying to undercut

that reform in the courts. Recently a proposed settlement was

announced in a long-running class ac-

tion lawsuit. This lawsuit had been

filed back in 2005 by a number of mer-

chants against Visa, MasterCard, and

the big banks that issue most of their

credit cards. The lawsuit was over credit card

interchange fees and the associated

rules that Visa and MasterCard impose

on merchants. The suit alleged that

these fees and rules violate the anti-

trust laws in the way that they are set. This lawsuit had the potential to

bring about important changes to the

credit card system that would have

promoted transparency, enhanced com-

petition, and helped consumers. But the proposed settlement does not

do that. In fact, I believe this proposed

settlement represents a capitulation to

the Wall Street banks and credit card

giants. It is a sweetheart deal for them

and a bad deal for merchants and for

consumers. The settlement was negotiated in se-

cret between Visa, MasterCard, the big

banks, and the attorneys representing

a small number of merchants. The vast

majority of merchants had no idea

what was in the proposed settlement

until it was unveiled.

The terms of the settlement include

a $6 billion dollar payout from Visa,

MasterCard and the banks to the plain-

tiff merchants. That is a large number

it is nearly twice as much as the pre-

vious record payout in an antitrust

case. And it is a clear sign that the

card companies knew that their fees

were unreasonably high. But, $6 billion is only 2 months worth

of credit card interchange fees. And the

settlement does not prevent Visa and

MasterCard from simply jacking up

their fees even higher than before. The settlement does nothing to

change the anticompetitive fee-fixing

that Visa and MasterCard do on behalf

of their member banks. In fact, it gives

Visa and MasterCard broad and perma-

nent legal immunity to continue doing

exactly that in the future. Also, the settlement not only binds

the merchants who are parties to it,

but it also binds every single American

merchant, charity, university, and

State or local agency that accepts a

Visa or a MasterCard today or in the

future. It bars all of them from ever bringing

a legal claim in the future against

Visa, MasterCard, or the big banks re-

lating to any swipe fee, other merchant

fee, or network rule, no matter how un-

fair or unreasonable the fees or rules

may be. And this settlement gives Visa and

MasterCard legal immunity not just

for credit cards, but also for debit

cards, and prepaid cards and mobile

payment systems. The extent of the free pass Visa and

MasterCard would get under this pro-

posed settlement is breathtaking. No

wonder the banks and cards were so

quick to come out in favor of this set-

tlement. And no wonder Visa’s stock

hit an alltime high the next business

day. Now, the proposed settlement would

make some temporary changes to

Visa’s and MasterCard’s rules. But in

my view, these proposed changes will

be ineffective in reining in Visa and

MasterCard’s unreasonable fees. The bottom line is that this proposed

settlement does not make our credit

card system better. Instead, it gives Visa and MasterCard

free reign to carry on their anti-

competitive swipe fee system with no

real constraints and no legal account-

ability to the millions of American

businesses that are forced to pay their

fees. This is a stunning giveaway to Visa

and MasterCard, all for a payout of a

mere 2 months worth of swipe fees. This is a bad deal, but it is not a done

deal. The merchant plaintiffs still have

to decide if they will support it, and

the court must approve it. Several

plaintiffs—the National Association of

Convenience Stores, the National Gro-

cers Association and the National Com-

munity Pharmacists Association—have

already rejected the deal. Now, I am not a party to this law-

suit, but I care deeply about making


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CONGRESSIONAL RECORD — SENATES5962 August 2, 2012 the credit and debit card systems in

this country more transparent, more

competitive, and more fair. I have worked hard over the years to

make sure that merchants and con-

sumers do not get nickled and dimed to

death with hidden and unreasonable

fees from Visa and MasterCard, and we

have made great strides. That is why I am speaking out about

my concerns with this proposed settle-

ment. I know that Visa, MasterCard,

and the banks are thrilled with this

settlement, but this is not a settlement

I would agree to. I hope that the remaining merchant

plaintiffs will review the proposed set-

tlement carefully and think hard about

whether it will be good for the future

of our credit and debit card systems.

They should not be anxious to sign

away that future and settle for a bad

deal.

f

TRIBUTE TO JOE MATAL

Mr. KYL. Mr. President, I want to

take a moment to recognize the service

of one of my longtime legal counsels on

the Judiciary Committee, Joe Matal.

Joe will be leaving the Senate in a few

weeks after 12 years of Senate service,

and I wanted to say a few words of

thanks. Joe is well-known on Capitol Hill as

a sharp, tenacious, and principled law-

yer who fights hard for principle and

the public good. It is frankly remark-

able to reflect on the breadth of issues

where Joe has played a major role in

his years of service, but I will list a

few. Joe was intimately involved in our

efforts to grapple with post-9/11 reali-

ties, in particular through the Military

Commissions Act and the Detainee

Treatment Act and the reauthoriza-

tions of the USA Patriot Act. Joe has been instrumental in efforts

to ensure appropriate DNA testing of

criminals and to ensure that the rape-

kit backlogs are cleared. He worked on

the Adam Walsh Act and the Internet

SAFETY Act. He is a go-to lawyer on

criminal sentencing issues. Very re-

cently, he has been an essential adviser

on negotiations relating to the cyber-

security legislation. I could go on and on. Joe has worked

on the animal crush video law I spon-

sored, on False Claims Act amend-

ments, on open government laws, and

on legal reform bills such as asbestos

litigation reform, the Class Action

Fairness Act, and Bankruptcy Reform.

He is also an expert on Indian Law and

has been an indispensable counsel on

my work that relates to Indian Coun-

try in Arizona, but also on Indian pol-

icy nationwide. Finally, and most obviously, in re-

cent years Joe has justly earned the re-

spect of the legal and policy commu-

nity nationwide as a major force in the

development of the patent reform bill

that Congress passed a year ago. In

fact, when Joe leaves my office, he will

remain in government service and

begin work as an assistant solicitor in the U.S. Patent and Trademark Office. Joe’s service there will be essential given that the agency is continuing to implement the patent reform bill that Joe did so much to create.

I would be remiss if I did not also note that some of Joe’s important serv-ice has been in the bills he helped en-sure did not become law. Our job as legislators is not to jump at every shadow, but to exercise caution when others seek to rush ill-considered legis-lation through the body. Joe’s counsel and his strategic guidance have been essential in protecting the Nation from many, many bills that would have been contrary to good public policy.

So I want to thank Joe and wish him the best as he leaves for the PTO. I also want to thank his wife, Maren, and his three children, John, Liddy, and Mar-garet, for supporting him in these years of public service. I appreciate Joe’s hard work and patriotic service and wish him the best in his new posi-tion.

f

CULTURE DOES MATTER

Mr. KYL. Mr. President, Governor Romney suggested on a recent trip to Israel that the culture of a society

plays a role in its prosperity. Some

took offense to these remarks, and oth-

ers disagreed with his premise. During

the last few days, a debate has ensued

about how culture promotes pros-

perity. I believe Governor Romney made an

important point. In a National Review

piece entitled, ‘‘Culture Does Matter,’’

he asks, ‘‘What exactly accounts for

prosperity if not culture?’’ After all, U.S. culture emphasizes

freedom, equality, hard work,

meritocratic excellence, upward mobil-

ity, the rule of law, and a devotion to

family, education, and a purpose higher

than oneself. These cultural values,

and others, have made America the

world’s leading superpower—a beacon

of prosperity, freedom, and strength.

Millions of people have left their

homes over the centuries to come to

America and be part of our way of life. As Governor Romney writes, Israel is

also a telling example of the role of

culture and prosperity. Like the United

States, Israel’s culture is based on free-

dom and the rule of law. He writes that

Israel’s embrace of political and eco-

nomic freedom:

. . . has created conditions that have enabled

innovators and entrepreneurs to make the

desert bloom. . . . In the face of improbable

odds, Israel today is a world leader in fields

ranging from medicine to information tech-

nology.

Of course other factors, such as eco-

nomic policies, contribute to a coun-

try’s prosperity. But the evidence

shows that the role of culture

shouldn’t be marginalized or dismissed. I ask unanimous consent that Gov-

ernor Romney’s entire article, ‘‘Cul-

ture Does Matter,’’ be printed in the

RECORD. I urge my colleagues to read

it.

There being no objection, the mate-

rial was ordered to be printed in the

RECORD, as follows:

[From the National Review Online, July 31,

2012]

CULTURE DOES MATTER

(By Mitt Romney)

During my recent trip to Israel, I had sug-

gested that the choices a society makes

about its culture play a role in creating pros-

perity, and that the significant disparity be-

tween Israeli and Palestinian living stand-

ards was powerfully influenced by it. In some

quarters, that comment became the subject

of controversy.

But what exactly accounts for prosperity if

not culture? In the case of the United States,

it is a particular kind of culture that has

made us the greatest economic power in the

history of the earth. Many significant fea-

tures come to mind: our work ethic, our ap-

preciation for education, our willingness to

take risks, our commitment to honor and

oath, our family orientation, our devotion to

a purpose greater than ourselves, our patri-

otism. But one feature of our culture that

propels the American economy stands out

above all others: freedom. The American

economy is fueled by freedom. Free people

and their free enterprises are what drive our

economic vitality.

The Founding Fathers wrote that we are

endowed by our Creator with the freedom to

pursue happiness. In the America they de-

signed, we would have economic freedom,

just as we would have political and religious

freedom. Here, we would not be limited by

the circumstance of birth nor directed by the

supposedly informed hand of government. We

would be free to pursue happiness as we wish.

Economic freedom is the only force that has

consistently succeeded in lifting people out

of poverty. It is the only principle that has

ever created sustained prosperity. It is why

our economy rose to rival those of the

world’s leading powers—and has long since

surpassed them all.

The linkage between freedom and eco-

nomic development has a universal applica-

bility. One only has to look at the contrast

between East and West Germany, and be-

tween North and South Korea for the

starkest demonstrations of the meaning of

freedom and the absence of freedom.

Israel is also a telling example. Like the

United States, the state of Israel has a cul-

ture that is based upon individual freedom

and the rule of law. It is a democracy that

has embraced liberty, both political and eco-

nomic. This embrace has created conditions

that have enabled innovators and entre-

preneurs to make the desert bloom. In the

face of improbable odds, Israel today is a

world leader in fields ranging from medicine

to information technology.

As the case of Israel makes plain, building

a free society is not a simple task. Rather, it

is struggle demanding constant courage and

sacrifice. Even here in the United States,

which from our inception as a nation has

been blessed with freedom, we faced monu-

mental challenges in harmonizing our ideals

with our institutions. We fought a bloody

civil war against slavery and it took a non-

violent civil-rights movement to bring polit-

ical and social equality to all Americans. In

these epic struggles we changed our ‘‘cul-

ture’’ and vastly improved it.

I have just returned from a trip abroad. I

visited three lands—Israel, Poland, and

Great Britain—which are defined by their re-

spective struggles for freedom. I met with

some of the greatest heroes of those strug-

gles. I am always glad to return to American

soil. On this occasion, I am only strength-

ened in my conviction that the pursuit of


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EXHIBIT B


Merchants Reach Landmark $7.25 Billion Settlement with Visa, MasterCard and Major U.S. Banks for Alleged Anticompetitive Practices and Price Fixing In Setting Interchange Fees Jul 13, 2012

MINNEAPOLIS, July 13, 2012- Robins, Kaplan, Miller & Ciresi L.L.P. has reached an historic $7.25 billion settlement on behalf of a class of approximately seven million merchants in the United States who accept Visa and MasterCard credit cards and debit cards. The settlement is with payment card networks Visa and MasterCard and with card-issuing banks, including JPMorgan Chase, Bank of America, Citibank, Wells Fargo, Capital One and other major banks.

Robins, Kaplan, Miller & Ciresi L.L.P. filed the case in 2005, and was appointed by the United States District Court for the Eastern District of New York, along with two other law firms, to represent the class in the case. The settlement that has now resolved the case is believed to be the largest ever settlement of a private antitrust case under the Sherman Act (15 U.S.C. §1 et seq.).

The settlement terms include a cash payment and significant reforms of Visa and MasterCard rules and business practices. The cash component of approximately $7.25 billion consists of a payment for alleged past damages in the amount of $6.05 billion, and a further payment representing the value to merchants of a temporary reduction in the level of interchange fees paid by merchants on Visa and MasterCard credit card transactions, estimated to have a value of $1.2 billion. The reforms of rules and business practices include modifications of network rules previously enforced by Visa and MasterCard relating to activity at the point-of-sale, as well as a new requirement that Visa and MasterCard negotiate with merchant-organized buying groups. The modification of these network rules will provide additional value to merchants of many billions of dollars by enabling merchants to provide greater transparency to consumers regarding the cost of using various types of payment methods, and permitting merchants to negotiate collectively over interchange fees and other aspects of their relationships with Visa and MasterCard. It is expected that the reforms required by the settlement will enable merchants to put pressure on Visa and MasterCard to limit or reduce interchange fees, among other things.

"The reforms achieved by this case and in this settlement will help shift the competitive balance from one formerly dominated by the banks which controlled the card networks to the side of merchants and consumers," states K. Craig Wildfang, who led the case for the Class Plaintiffs as co-lead counsel and partner at Robins, Kaplan, Miller & Ciresi L.L.P. "Over time, the reforms induced by this case and in this settlement should help reduce card-acceptance costs to merchants, which in turn, will result in lower prices for all consumers."

Martin R. Lueck, Chairman of the Executive Board at Robins, Kaplan Miller & Ciresi L.L.P. adds, "These reforms go a long way to achieving price transparency for the most heavily used form of payment in the United States, which will benefit consumers."

"As an ecommerce business who has to rely on credit cards, this historic settlement and the reforms it brings will provide both immediate and lasting benefits for small merchants,"

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Copyright © 2012 Robins, Kaplan, Miller & Ciresi L.L.P. All rights reserved. Attorney Advertising.

states Mitch Goldstone, President & CEO of ScanMyPhotos.com, a division of Photos Etc. Corporation.

The case is In re Payment Card Interchange Fee and Merchant Discount Litigation, 05-MD-1720 (JG)(JO). The other two co-lead counsel law firms that represent the class of merchants are Berger & Montague, P.C. and Robbins Geller Rudman & Dowd LLP.

Information for Merchants

Memorandum of UnderstandingPDF compatible software, such as Adobe's Acrobat Reader, is required to read this document. You may download a free copy of Adobe's Acrobat Reader or view a list of other PDF software.

Settlement Agreement

PDF compatible software, such as Adobe's Acrobat Reader, is required to read this document. You may download a free copy of Adobe's Acrobat Reader or view a list of other PDF software.

First Amended Supplement Class Action Complaint


Second Consolidated Amended Class Action Complaint


Second Supplemental Class Action Complaint


Related Links Information for Merchants■Martin Lueck■K. Craig Wildfang■Ryan Marth■Thomas Undlin■Antitrust and Trade Regulation■Business Litigation■

Page 2 of 2

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SAN DIEGO NEW YORK BOCA RATON PHILADELPHIA SAN FRANCISCO MANHATTAN WASHINGTON D.C. ATLANTA CHICAGO

Robbins Geller Rudman & Dowd LLP AnnouncesHistoric Settlement in Credit Card Interchange Fee CaseJuly 13, 2012

San Diego, CA, July 13, 2012 – Robbins Geller Rudman & Dowd LLP (“Robbins Geller”) announced today the largestantitrust settlement in history. If approved, the settlement will create a fund of up to $7.25 billion available toapproximately seven million merchants to settle claims that Visa, MasterCard and more than a dozen of the nation’slargest banks conspired to restrain competition. Plaintiffs claimed that the “interchange fee” – a fee that goes from themerchant to the issuing bank – was illegally set by the banks that, until recently, controlled Visa and MasterCard.

The settlement also requires Visa and MasterCard to modify their merchant rules and frees retailers to encourageconsumers to use cheaper forms of payments. “These new rules will give merchants the tools they need to put pressureon the credit card networks to lower interchange or ‘swipe’ fees, which are the second or third highest cost of doingbusiness for many retailers,” said Patrick J. Coughlin, senior trial counsel at Robbins Geller and one of the lawyers forthe plaintiffs. “Reducing these fees will reduce costs, ultimately resulting in lower prices for consumers,” he added.

Visa, MasterCard and the banks, including JPMorgan Chase, Bank of America, Citibank, Wells Fargo, Capital One andother major banks, have agreed to establish a fund of $6.05 billion to pay merchant claims. In addition, Visa andMasterCard will reduce interchange, or “swipe,” fees that would otherwise be paid by merchants on Visa andMasterCard credit card transactions over an eight-month period while the new rules are implemented. The settlementstill needs preliminary approval from the court. This pool of reduced “swipe” fees is valued at approximately $1.2 billion.

“This is an historic settlement. In addition to refunding billions of dollars to retailers that paid artificially inflatedinterchange fees, the reforms will create real price competition, leading to reduced card-acceptance fees for retailers,”said Bonny E. Sweeney, the firm’s senior antitrust partner and its principal litigator in the case.

If approved, this settlement will represent the largest ever recovery in an antitrust case and will be the second largestclass action settlement ever. Robbins Geller, co-lead counsel in this case, was sole lead counsel in the Enron case,which resulted in the largest class action settlement in history.

The complexity of this case was enormous and the consequences of the settlement far reaching. It took more than ayear to negotiate the settlement among the dozens of parties to the suit and was achieved with the assistance ofseasoned mediators Professor Eric Green and the Hon. Edward Infante, Ret.

The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, MD-05-1720 (JG) (JO),and is pending in the Eastern District of New York. Robbins Geller is co-lead counsel for the plaintiffs, together withRobins Kaplan Miller & Ceresi, L.L.P. and Berger & Montague, P.C.

About Robbins Geller Rudman & Dowd LLP Robbins Geller represents U.S. and international institutional investorsin contingency-based complex litigation. With nearly 200 lawyers in nine offices, the firm represents hundreds of publicand multi-employer pension funds with combined assets under management in excess of $1.5 trillion. The firm hasobtained the largest recoveries in history in six of the eight categories of shareholder class action settlements and hasbeen ranked number one in the number of shareholder class action recoveries in MSCI’s Top SCAS 50 every year since2003. According to Cornerstone Research, the firm’s recoveries have averaged 35% above the median for all firms over


SAN DIEGO NEW YORK BOCA RATON PHILADELPHIA SAN FRANCISCO MANHATTAN WASHINGTON D.C. ATLANTA CHICAGO

the past seven years (2005-2011).

Robbins Geller Rudman & Dowd LLP Announces Historic Settlement in Credit Card Interchange Fee


Merchants Reach Landmark $7.25 Billion Settlement with Visa, MasterCard and Major U.S. Banks for Alleged Anticompetitive Practices and Price Fixing In Setting Interchange Fees

Posted: July 13, 2012

Outcome: Settlement

Practice Areas: Antitrust

PHILADELPHIA, July 13, 2012- Berger & Montague, P.C., as one of three Court appointed Co-Lead Class Counsel, announces that a historic $7.25 billion settlement has been reached on behalf of a class of approximately seven million merchants in the United States who accept Visa and MasterCard credit cards and debit cards. The settlement is with payment card networks Visa and MasterCard and with card-issuing banks, including JPMorgan Chase, Bank of America, Citibank, Wells Fargo, Capital One and other major banks.

Berger & Montague, P.C. was appointed by the United States District Court for the Eastern District of New York, along with two other law firms, to represent the class in the case. The settlement is believed to be the largest ever settlement of a private antitrust case under the Sherman Act (15 U.S.C. §1 et seq.).

The settlement terms include a cash payment and significant modifications to Visa's and MasterCard's rules. The cash component of approximately $7.25 billion consists of a payment for alleged past damages in the amount of $6.05 billion, and a further payment estimated at $1.2 billion representing the value to merchants of a temporary reduction in the level of interchange fees paid by merchants on Visa and MasterCard credit card transactions. The modifications to the rules of Visa and MasterCard will encourage transparency of payment card costs at the point of sale and allow merchants to steer customers to less expensive methods of payment, thus allowing consumers to make choices that affect the cost of goods and services. These rules modifications required by the settlement should allow merchants to put pressure on Visa and MasterCard to lower interchange fees. This should help merchants to reduce one of their more significant costs of doing business which over time should result in lower prices to consumers.

This litigation and this settlement has and will have a very meaningful impact on changing the playing field over time in the credit and debit card industry. It should all redound to the benefit of both merchants and consumers.

H. Laddie Montague, Jr., Merrill G. Davidoff, Bart D. Cohen and Michael J. Kane led the case for Berger & Montague, P.C.

The case is In re Payment Card Interchange Fee and Merchant Discount Litigation, 05-MD-1720 (JG)(JO). The other Co-Lead Counsel law firms that represent the class of merchants are Robins, Kaplan, Miller & Ciresi L.L.P. and Robbins Geller Rudman & Dowd LLP.

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EXHIBIT C


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By ANDREW R. JOHNSON

The National Grocers Association, one of the plaintiffs suing Visa Inc. V +0.58% and MasterCard Inc. MA +1.93% over credit-card transaction fees, said Thursday it opposes the $7.25 billion class-action settlement reached in the case earlier this month.

The trade group, which represents more than 1,200 companies, is among a growing number of voices to blast the deal for what they say is a failure to address problems in how the card networks set so-called interchange or swipe fees. Target Corp. TGT +0.48%

and Wal-Mart Stores Inc. , WMT +0.98% which aren't plaintiffs, have also criticized the settlement, which requires court approval.

The National Grocers Association "joined the lawsuit on behalf of its independent retail grocer members over seven years ago to bring about real reform of the anticompetitive credit-card swipe fee system," said Peter Larkin, president and chief executive of the trade group, in a statement. "This proposed settlement agreement fails in this regard by allowing Visa and MasterCard to continue their dominant anticompetitive practices."

The NGA's decision to oppose the settlement applies only to the trade group itself, not its members, which will have the ability to formally opt in or out of the agreement. Analysts don't expect enough merchants will opt out of the deal to derail it.

Plaintiffs accused the credit-card companies of conspiring to set interchange fees arbitrarily high. Another plaintiff, the National Association of Convenience Stores, also said it rejected the deal when it was announced July 13.

"We think that those who are opposed to the settlement are extraordinarily misguided because they haven't considered the practical alternatives to the settlement, which are very undesirable for merchants because it involves another four or five or six years of litigation and no realistic opportunity for a better outcome even after more litigation," said Craig Wildfang, a partner with Robins, Kaplan, Miller & Ciresi LLP, one of the law firms representing the class plaintiffs in the suit.

Under the settlement, Visa, MasterCard and card-issuing banks including Bank of America Corp. BAC 0.00% and J.P. Morgan Chase JPM +0.41% & Co. agreed to pay more than $6 billion to merchants. The card networks also agreed to temporarily reduce swipe fees, or interchange fees, on credit-card transactions and allow merchants to surcharge customers who pay with cards, an ability that retail groups have sought but Visa and MasterCard prohibited.

The grocers group said the ability to charge customers extra for using a credit cards includes "burdensome restrictions," which makes it "unlikely that many of NGA's members will be able to make this provision workable."

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The provision would require merchants to post signs notifying customers that they surcharge and include the amount of any fee on receipts, measures that the card networks said are intended to protect consumers. Merchants wouldn't be allowed to surcharge Visa and MasterCard cardholders more than what they charge customers paying with American Express Co. AXP +0.47% and Discover Financial Services DFS +0.54% cards.

A spokesman for MasterCard declined to comment on the NGA's statements. A Visa spokesman didn't immediately respond to a request for comment, though Visa Chairman and Chief Executive Joe Saunders said on a conference call Wednesday the company expects the settlement will "have support among the retail community in the U.S. because it is a fair and an appropriate compromise for all parties."

If merchants representing 25% of Visa and MasterCard's credit-card sales volume opt out of the settlement, the card networks have the ability to cancel it.

The likelihood of that occurring, though, is slim, according to Keefe, Bruyette & Woods, which performed an analysis of sales of the top 100 U.S. retailers. Those merchants combined equal about 25% of Visa and MasterCard credit-card volume, KBW said, noting 15 of those retailers have already agreed to a separate settlement with the card networks.

"Even in the worst-case scenario where all of the remaining top 85 retailers...opt out of a settlement, their representation of volume would amount to roughly 20%," KBW said. "Outside of a coordinated and large retailer movement to opt out of a settlement, we believe the risks to a settlement are relatively low."

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By Kate Fitzgerald

Even Wal-Mart's Opposition May Not Derail Swipe-Fee SettlementPaymentsSource | Tuesday, July 24, 2012

Wal-Mart Stores Inc. and Target Corp. have vocally opposed the card networks' proposed multi-billion dollar interchange fee settlement, but even these giants may not have the influence to spike the agreement.

Visa and MasterCard, as part of a proposal to end the long-running litigation, offered a temporary reduction in interchange rates and a new permission to add a surcharge to card transactions. Some merchants immediately pushed back, and Wal-Mart today said the terms still "require merchants to broadly waive their rights."

The proposed settlement would be rejected if 25% of the nation's approximately 7 million merchants opt out, but lawyers close to the case said the settlement is still on track to be approved.

"I don't believe there is much chance that the settlement will not go through, even though certain merchants are making noise about it," K. Craig Wildfang, co-lead counsel for the plaintiffs, said in an interview. Wildfang, a partner at Minneapolis-based Robins, Kaplan, Miller & Ciresi L.L.P., has been directly involved in the case over the last seven years.

Wal-Mart was not among named plaintiffs in the case, Wildfang said. And while the nation's largest retailer may continue pushing for interchange reform through various legislative and other channels, "as far as legal settlements in federal court go, neither Wal-Mart nor Target has laid out an effective Plan B," he says.

Named plaintiffs in the settlement include Kroger Co., Walgreen Co., Safeway Inc., Rite Aid Corp., Publix Supermarkets Inc. and several others.

The proposed surcharge is impractical for most retailers, experts say.

"Outside of some convenience stores and gas stations, most merchants do not want to risk turning customers away by surcharging them for credit cards, and Wal-Mart is letting it be known that they are going to keep pushing for other ways to knock down interchange," Aaron McPherson, practice director with IDC Financial Insights, said in an interview.

It is also clear that the merchants care less about getting a one-time payout from the settlement and more about maintaining pressure to change interchange policies for good, McPherson says.

"Nobody seems to regard the money as significant, because the market priced in the cost of the settlement a long time ago," he says.

Wal-Mart, in its statement, reiterated its longtime complaint that the interchange market is "broken," and settling would force merchants to waive their rights to take further legal action against the card networks. The settlement would "also constrain emerging payments innovation," Wal-Mart said in its statement, but a company spokesperson declined to specify how.

Target last week expressed its displeasure with the settlement, joining the National Association of Convenience Stores in opposing the agreement.

Wal-Mart and Target's complaints about the settlement so far focus on the structure of interchange rates, which is outside the scope of action for a federal court in an antitrust case, Wildfang notes.

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The Electronic Payments Coalition also stands firm in its belief that the settlement will ultimately be approved, Trish Wexler, a spokesperson for the Washington, D.C.-based group representing Visa Inc., MasterCard Inc. and dozens of major banks and state bankers' associations, said via e-mail.

Though Wal-Mart claims that the settlement would get in the way of payment innovation, "to the contrary, this settlement will remove the persistent distraction that the litigation presented, set out rules of the road going forward, and better able all participants in the electronic payments industry, including emerging companies, to refocus their investments, conduct research and development and innovate their products and services," Wexler says.

A MasterCard spokesperson declined to comment on Wal-Mart's complaints about the settlement.

"While we recognize some merchants may have different opinions, the settlement represents a solution reached after years of litigation and months of negotiation," MasterCard said in a July 24 statement. "The provisions of the settlement, including the flexibility for merchants to impose checkout fees, new negotiating tools for merchants and the scope of the release, was reached with the assistance of the court and was supported by the merchant class representing millions of large and small retailers, and prominent trade groups across the country."

Visa did not respond to an inquiry by deadline.

© 2012 PaymentsSource and SourceMeInvestcorp company. Use, duplication, oas described in the Subscription Agreem

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AUGUST 8, 2012, 11:35 AM

Will the Credit Card Settlement Help Merchants?

By ROBB MANDELBAUM

The Times has published an article exploring the dissatisfaction brewing among some retailer advocates with a recently proposed settlement to a lawsuit that pitted merchants against Visa, MasterCard and the leading banks. Among the grievances: for the first time, merchants would gain the right to charge customers more for paying with a credit card - unless they accept American Express cards. As the article explains, American Express, which is not party to the settlement, has rules that can make it difficult or impossible for merchants to institute surcharges.

If this sounds familiar, it's because merchants raised the same complaint about the Justice Department's antitrust settlement with MasterCard and Visa in October 2010. That settlement required the card networks to rewrite rules that prohibited merchants from offering discounts for using certain cards. There, too, merchants that took American Express were hamstrung by American Express's ban on discounting payment cards. A government antitrust lawsuit against American Express is pending.

For their part, the credit card companies say that few merchants will want to apply a surcharge in any event. Indeed, none of the retailers contacted for The Times story said they planned to institute surcharges on credit card transactions - at least not at the outset. But a couple of them said they would wait to see what their larger competitors do. Robert Benham, who owns Balliets, a women's clothing boutique in Oklahoma City, said he might add a surcharge if other stores do it, but, "I'm not going to blink first."

If the settlement is ineffective, the obvious question is, what would opponents like to see in its place? Mallory Duncan, senior vice president and general counsel at the National Retail Federation, a trade association, said he would have preferred a settlement that eliminated the rules credit card companies set for merchants and also increases transparency, "so that both retailers and consumers know, up front, how much the specific swipe fee will be for the card they are using."

"It becomes almost Talmudic to interpret the various MasterCard and Visa rules," Mr. Duncan added. "What they claim on the surface often has no bearing on how they operate in practice. So the merchant on the street doesn't know what he can or cannot do, without asking the card companies. And you can't have competition when the other guy gets to tell you how to run your business."

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Copyright 2012 The New York Times Company Privacy Policy NYTimes.com 620 Eighth Avenue New York, NY 10018

Representatives of the payment industry take issue with that characterization. "Visa and MasterCard both have tried to simplify and streamline their rules for the benefits of merchants," said Bob Stolebarger, a lawyer for the Electronic Payments Coalition, an organization that represents Visa, MasterCard, and the banks that issue their cards. "The rules are available, they're in plain English, and they make perfect sense."

Henry Polmer, a Washington lawyer who specializes in electronic payment networks, said that the only way to keep credit card fees from rising is either to cap them or to force individual issuing banks to set their own rates, rather than let MasterCard and Visa set the rates for all their issuers. "That would create real and lasting change and open the credit card market to meaningful price competition," he said.

Andy Charles, who owns Haven's Candies in Portland, Me., seconded several of these remedies. "Interchange fees make up the vast majority of the costs of accepting a credit card, and I have no idea how Visa and MasterCard set them," he said. And though Mr. Charles insisted he was a believer in free markets, he supported government intervention in this case. In Europe, he said, "the amount of commerce they do is similar, and demographically and financially it's similar, and yet their fees are one-eighth of ours, and that makes you wonder what accounts for the difference. And as far as I can tell, the only difference is that the fees are regulated." Yet card companies, he said, "still manage to make a profit over there, too."

But a lawyer for the plaintiffs who negotiated the settlement, H. Laddie Montague, warned merchants against setting expectations too high. "There are a lot of risks if this case were tried, and then went to appeal, whether they would get a result as good as what we've obtained in this settlement," he said. "Or whether they would get any results at all."

If you're a merchant, would this settlement affect the way you do business?

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EXHIBIT D


August 2, 2012

For Member’s Briefing Book: Interchange Litigation Settlement – FAQs and More

As members of Congress head back to their home districts for the August recess, please consider sharing these documents about the recent interchange fee settlement in his or her briefing materials. The FAQ and comparison chart (what retailers demanded in the past and what they won in the settlement) will help your member better understand the settlement and address any questions about the impact on your constituents.

FAQs (PDF)

Comparison Chart (PDF)

We hope you will find this to be a useful tool, particularly given the amount of recent news coverage for the settlement focused on checkout fees, or the new surcharges that merchants can impose upon credit card using customers as a result of the settlement. As The Wall Street Journal writes: “Don’t be shocked if your favorite retailer, doctor or restaurant soon asks you to pay an extra 2.5% or 3%, just for using a credit card.”

For additional information, please visit the Electronic Payments Coalition website or contact Jeff Tassey at [email protected].

FAQs About the Recent Interchange Fee Settlement

What is this settlement, and what does it mean? What did retailers “win?” What should consumers know about “checkout fees” that retailers negotiated as part of the settlement? Why did retailers insist on the ability to charge a separate checkout fee in the settlement? Don’t they already build card acceptance costs into their prices? Will consumers see lower prices as a result of lower interchange fees? Does this settlement allow for cash discounts? Did the court find any anticompetitive practices? Is this agreement final, or “proposed?” If some retailers object, might the judge not approve the final settlement agreement? What if a large number of large retailers opt-out? Would this dissolve the settlement agreement? Why are retailers objecting to this? Is the epic battle over interchange fees really over? Is there a need for further Congressional action?

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Frequently Asked Questions about the Payment Card Settlement What is this settlement, and what does it mean? On July 13, 2012, a settlement of the long-running dispute between the retail industry and payment card industry over fees for accepting electronic payments was finally reached. The settlement ends a fight about money, and relieves Congress of the task of picking winners and losers in this complex business dispute. After a more than seven year legal battle with a detour into the Beltway that resulted in price controls on debit card fees the long business to business conflict over interchange fees is finally over, settled by a well-established legal process. Through five years of mediation with the last two years of intense mediation, dozens of meetings, and hundreds of lawyers pouring over 400 depositions and more than 50 million pages of evidence, the counsel appointed by the court to represent the retailer class and the defendants' counsel, as well as the parties themselves have willingly agreed to settle this dispute. As the settlement agreement notes, this settlement was, with the consent of all sides, facilitated by the skillful involvement of two expert Mediators and the Judge himself.

? The final settlement agreement grants card accepting merchants the following:

1. Cash payment: $6.05 billion 2. Credit interchange modification: 10 basis points for eight months. Anticipated value is

approximately $1.2 billion 3. Ability to charge at the point of sale for customers paying with a credit or

charge card 4. Ability to form buying groups to negotiate interchange rates collectively

These concessions are in addition to other previous wins on the part of the retailers:

$8 billion fees money not being shared with consumers

Ability to set a $10 minimum on credit card purchases this is in addition to their ability to offer a discount for paying with cash, check or debit card, as well as discounts for non-rewards versus rewards cards

$3 billion settlement from the Corporate restructuring of both payment networks, Visa and MasterCard, so that they are no

longer owned and controlled by the banks and subject to claims that groups of competitors were restraining competition and fixing price, instead they are owned by the public and set price as another public company does

Settlement with the Department of Justice whereby the payment networks drop their anti-discrimination rules


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settlement? As part of the settlement, retailers demanded the ability to charge a checkout fee, or retailer surcharge, at the register for credit or charge card transactions. This is a practice that had previously been banned by Visa and MasterCard, and is illegal in 10 states. Fortunately, there are important consumer protection measures built into the settlement both in what

with this o hide these checkout fees. Retailers can only charge up to what they pay to accept the card typically between 1.5 and three percent in the U.S. with a cap of no more than about four percent. Also, retailers must clearly alert their customers, at the point of entry, the point of sale, and on the receipt, that they are being charged a checkout fee for credit card payments. This way, consumers can make choices before being surprised. Why did retailers insist on the ability to charge a separate checkoualready build card acceptance costs into their prices? It is important to remember that costs associated with card acceptance are already built into the prices of goods and services, much like electricity, salaries, insurance and other business expenses. Unless

credit card users would end up paying for this business expense twice. To be fair, retailers should first lower all prices across the board before imposing a checkout fee. Will consumers see lower prices as a result of lower interchange fees? Consumers should be very clear Durbin amendmentsee savings from this settlement either. Retailers promised to lower prices if Congress lowered what they pay to accept debit. Instead, retailers kept their $8 billion windfall, and their customers have not seen any savings. Does this settlement allow for cash discounts? No, but interestingly, discounts for cash have always been allowed, although almost never used. Some retailers are now claiming that the settlement allows for discounts for cash. There is nothing in the 100+

Discounts for cash have been legally allowed since 1981. The settlement agreement, rather, allows for the practice of charging a checkout fee. While true that a cash-payer would pay less than a customer who is charged an additional checkout fee for using their credit card Consumers should be conscious of their rights, and be careful to not be tricked by a sleight of hand scheme that tries to should arm themselves with the facts, and know their rights. Retailers are required to disclose very clearly that they are charging a checkout fee, and are not allowed to mask it as a discount.


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Did the court find any anticompetitive practices? No court has ever ruled that the electronic payments system is anything but legal. It has, in fact, been found legal on multiple occasions. Furthermore, specifically on the no surcharge rule, the U.S.

id the anti-surcharging rule was anticompetitive. Importantly, merchant class representatives have indicated publicly that they had initially sought well over $100 billion. In the end, the class accepted $6.05 billion for the past and $1.2 billion going forward. If anything is to be inferred from this, it is that the settlement is the end of a hard fought battle where all sides had to compromise to get a final resolution of this business to business dispute. The global electronic payments system is a growing and thriving market. Today, there are more than two billion cards in use worldwide, issued by nearly 30,000 banks and credit unions, with over 25 million merchants accepting those cards. About two million new merchants are joining the network each year, to tap into the $3.3 trillion in annual payment volume. In fact, most of us cannot imagine a world without debit, credit, and charge cards. A robust card network means greater access to customers for merchants, greater convenience for consumers, and stability for banks and credit unions.

This is a final settlement agreement, subject to final approval by the courts. It became a final agreement on July 13 via the signatures of all of the court appointed class counsel acting in the best interests of the entire retailer class and all of the Defendants' counsel. Now signed, it is properly regarded as a final and binding agreement, subject to the Court's approval and the approvals, if any, that the Court finds necessary. While as with any settlement of class action litigation, several additional steps must occur before the final agreement is actually implemented i.e., court approval. That, however, does not make the

one that the judge will next be asked to approve. Those who signed the final agreement are now compelled, through their signatures, to ask for the judge to approve it. If some retailers object, might the judge not approve the final settlement agreement? It is not unusual in a class action of this size to have some fringe members object, resulting in litigation over the objection. Given the length and comprehensiveness of the over seven year negotiation process combined with the strenuous efforts of two highly respected Mediators who worked on every detail, it seems unlikely that the Judge who has been witness to this intense process would now find the settlement agreed upon by nearly everyone involved and the largest settlement of an antitrust class action in U.S. history to be unfair or inadequate upon judicial review. What if a large number of large retailers opt out? Would this dissolve the settlement agreement? No, not automatically and, this is an extraordinarily remote scenario. The settlement allows members of the class to opt-out of the damages portion of the settlement agreement if they prefer to litigate independently for more damages. No retailer, however, can opt-out


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of the forward-looking injunctive portion of the settlement, related to rules changes such as surcharging or collective bargaining. The defendants (Visa, MasterCard, and the banks) have the right to terminate the settlement agreement should more than 25 percent of the merchants opt out of the damages portion. But according to a recent analysis by Keefe, Bruyette & Woods, even if the remaining 85 of the largest retailers all opted out, that still would not reach a 25 percent threshold. Why are retailers objecting to this? It was entirely unsurprising to see some of the more litigious retail associations saying that they are still not satisfied with this new windfall. A year after a $3 billion settlement in 2004, these retailers immediately relitigated for more money. At the same time, they began a parallel legislative strategy, lobbying Congress for price controls. After winning an $8 billion windfall with the Durbin amendment in Congress, they similarly complained that this was also not enough, and filed suit against the Federal Reserve in an effort to extract even more. And now, with the largest antitrust settlement in the history of our nation, they remain unsatisfied. Nothing will ever be enough for some retailers. What these outlier retailers really want is to continue to lobby Congress for even more. If they had remained quiet on the settlement agreement, it would make their lobbying efforts challenging. By objecting, they must believe that this gives them a runway to ask for more congressional handouts. Is the epic battle over interchange fees really over? Yes. Finality is one of the goals of this type of litigation. The judge in the 2004 Walmart case Judge John Gleeson also presided over the new lawsuit and appeared determined to implement a process that provided a more comprehensive and lasting solution to this dispute. He succeeded in the specific case, but the larger success was the creation of a template for future judicial resolution.

d all antitrust and other competitive

Simply stated, this settlement resolves all past disputes and establishes a system that will govern the payment system in the future. After a long, thorough and arduous process, nothing remains for Congress, or anyone else, to address. Is there a need for further congressional action? This legal process was the appropriate venue for resolving complex business disputes between two large industries. The deliberate and measured approach of the settlement process is in stark contrast to that of the Durbin amendment, which was passed in the dark of night with no review of its consequences and virtually no public debate. The Durbin amendment was, in fact, an effort by the retailers to circumvent the legal process unsatisfied with the deliberate pace taken in these negotiations, taking advantage of the political climate in Washington at the time. These government price controls shifted $8 billion from banks to the retailers, without any real consideration for consumers. Government price controls are not a solution for a complex business dispute between two large industries.


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The settlement explicitly states that this resolves all competitive issues between the retail and payment industries, through both monetary relief and rule changes.


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