In a landmark settlement that will have sweeping impact on the credit-card industry in the U.S., Visa and MasterCard have agreed to pay $7.25 billion to settle a massive anti-trust case filed seven years ago by two Irvine businessmen.
Mitch Goldstone and Carl Berman, co-owners of 30 Minute Photo Etc. and now ScanMyPhotos.com, in 2005 alleged that Visa, MasterCard and some of the country’s largest banks were conspiring to unlawfully fix swipe fees for merchants.
The settlement was reached on behalf of a class of roughly 7 million U.S. merchants who accept Visa and MasterCard credit and debit cards, according to Robins, Kaplan, Miller & Ciresi, the Minneapolis-based law firm that represented the plaintiffs.
The settlement, which needs court approval, was reached months ago but announced today after the close of Wall Street trading. Goldstone and Berman are the lead plaintiffs in the class-action suit.
“Emotionally this is an enormous victory,” said Goldstone, president and CEO of ScanMyPhotos.com, less than an hour after news of the settlement went public. “It is a huge victory for merchants all across Orange County and America.
“This is my Erin Brockovich moment,” added Goldstone, who with partner Berman opened a photo-processing business in Irvine in 1990. Goldstone has spent recent years crisscrossing the U.S. to testify on the matter and to build interest in the case.
“As an e-commerce business [that] has to rely on credit cards, this historic settlement and the reforms it brings will provide both immediate and lasting benefits for small merchants,” he said.
As part of the settlement, Visa agreed to pay $4.4 billion; MasterCard will pay $790 million. The balance will be paid by banks including JP Morgan, Bank of America, Wells Fargo, Citibank, Capital One and others. The settlement terms, according to the law firm, include a cash payment and significant reforms of Visa and MasterCard rules and business practices.
"The reforms achieved by this case and in this settlement will help shift the competitive balance from one formerly dominated by the banks [that] controlled the card networks to the side of merchants and consumers," said K. Craig Wildfang, who was co-counsel for the plaintiffs. "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."
According to CNN, Visa CEO Joseph Saunders said in a statement: “We believe settling this case is in the best interests of all parties. We are comfortable with the terms.”
MasterCard general counsel Noah Hanft said that while the company has “strong defenses to all claims,” the settlement “avoids years of litigation and uncertainties that are inherent in such cases.”
Goldstone said he initiated the suit against the credit-card networks because he was frustrated by what he claimed were artificially high fees charged to retailers despite advances in technology that reduced the costs and time required to handle payments.
“I used to charge $5 to process and print a photo. But technology changed, and I was suddenly scanning photos for 8 or 9 cents,” Goldstone said. “I kept wondering why credit-card networks weren’t passing along savings they were receiving with advances in technology in their industry. It didn’t make sense.”
ScanMyPhotos.com has been a pioneer of super-fast and affordable digitization of photos, slides, film and negatives and recently topped 100 million scans. The company closed its longtime retail storefront, where it processed film and print pictures, and moved to a 6,000-square-foot corporate office in Irvine to run its expanding photo-scanning business.