May 23, 2013

City may pursue claims in credit card fee-fixing case

Houston City Council on Wednesday voted to hired law firm Beck Redden to represent its interests in a pending class action lawsuit against Visa and MasterCard for allegedly conspiring to fix the fees they charge, in violation of federal antitrust laws.

Every entity that accepts the credit cards, from retailers to governments to hospitals, is impacted, City Attorney David Feldman said.

Litigation has been pending on the issue since 2009, Feldman said, and a group of class-action litigants have negotiated a settlement with the credit card giants. The period during which the fees allegedly were fixed covers Jan. 1, 2004 to Nov. 28, 2012 (when the proposed settlement was reached).

The plaintiffs agreeing to settle for between 1 percent to 3 percent of the fees they paid generally are small entities with less at stake than a city as large as Houston, or large retailers such as Wal-Mart and Target. These large plaintiffs have opted out of the proposed settlement, Feldman said, and are negotiating for a bigger payout. (Wal-Mart, he said, has decided to purse its own separate lawsuit; the city is unlikely to take that route.)

City Council approval was needed so the firm could file papers opting the city out of the proposed settlement and allowing it to participate in the continuing negotiations, Feldman said. (Click here for a document explaining the item council voted on.)

“We can do better by being a part of a group of opts out, that negotiates a separate settlement,” Feldman said. “Most of the major retailers in the country have opted out, and any number of governmental entities have also opted out. Beck Redden represents the largest group of objectors or opt-outs, so they’ve got some leverage in negotiating a better deal.”

Beck Redden will get 25 percent of what the city receives beyond what it would have received had it agreed to the proposed class action settlement.

City staff are still pulling data to learn exactly how much is at stake. Data gathered from one of the two banks that processes credit card payments for the city shows that, in recent years, Houston paid the firms about $500,000 in transaction fees annually (though that figure excludes fees paid on credit card transactions at parking meters).

“We could be talking about a fairly substantial number in the actual amount of fees paid based on the use of these two cards by citizens through these two banks over a period of nine years,” Feldman said.

For the sake of some basic numbers, if we assume the city paid annual similar fees through both banks during the entire period during which the fees allegedly were fixed, that would mean $9 million in fees paid. A 3 percent settlement would mean $270,000 received; a 5 percent deal, $450,000 (minus lawyers’ fees).

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