By  on December 9, 2009

WASHINGTON — An estimated 634,000 retailers will share a holiday windfall of $1.1 billion, the final payment in a landmark antitrust case against Visa and MasterCard over debit and credit card practices.

The merchants will start receiving checks this week as part of the 2003 settlement of their $3.4 billion class action lawsuit.

The National Retail Federation, International Mass Retail Association (now the Retail Industry Leaders Association) and 20 chains, including Wal-Mart Stores Inc., Sears and The Limited Inc., filed a lawsuit against Visa and MasterCard in federal court in New York’s Eastern District in 1996, alleging the companies violated federal antitrust laws. The lawsuit specifically cited the “honor all cards” rule, which required merchants that signed contracts for the use of Visa and MasterCard credit cards to also accept their debit cards. For every transaction on a credit or debit card, retailers pay a fee to the card companies.

Attorney Jeffrey Shinder, managing partner of the New York office of Constantine Cannon, which represented the retailers, said merchants initially asked Visa and MasterCard to change their policies and allow them to accept only credit cards, but were rebuffed.

In settling the lawsuit, Visa and MasterCard agreed to a 10-year payment plan. But this year, Shinder said the companies asked to prepay the outstanding amount, and the request was recently approved by Judge John Gleeson.

“The biggest part of the settlement is that the rule that linked credit and debit cards was broken,” Shinder said. “Visa and MasterCard rescinded the rule and allowed merchants to make a choice. That choice has allowed a number of merchants to negotiate much lower rates [that they pay] on those cards and saved merchants more than the $3.4 billion.”

Retail groups said the timing of the payout would help merchants struggling with turmoil in the economy. Shinder said thousands of retailers will receive checks for more than $50,000, while hundreds will get more than $1 million.

“Many retailers are struggling right now,” said Mallory Duncan, senior vice president and general counsel at the NRF. “This can make a difference in terms of the value and promotion they are able to offer customers right at the peak of the Christmas season.”

Sandy Kennedy, president of RILA, said: “This is a welcome holiday bonus to retailers nationwide. Retail sales are just beginning to stabilize and with the holiday season in full swing, this remarkable payment should help retailers continue to hire and retain workers as we head into the new year.”

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