According to Bloomberg,
Bank of America Corporation
) will shell out $738 million as compensation to retailers for a
lawsuit alleging the company, along with other card companies, of
charging excess debit and credit card fees. This forms a part of
the largest antitrust litigation settlement in the U.S. history.
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Back in 2005, about 7 million merchants had charged card companies
and several big banks with fixing prices and unduly increasing
processing or interchange fees on transactions made through debit
and credit cards. The settlement is aimed to resolve this
multi-state U.S. merchant lawsuit.
Moreover, the settlement would permit retail stores to charge the
customers extra amounts for card usage. This step is taken to
divert consumers' interest towards other forms of payments.
Earlier in July, credit card giants
) entered into a formal agreement with the federal court of
Brooklyn to settle this lawsuit. Accordingly, both these companies
agreed to pay about $6.0 billion to the retailers. While Visa is
expected to incur a cash settlement charge of $4.1 billion,
MasterCard projects to record $790 million (pre-tax) as lawsuit
penalty in the remaining half of 2012.
BofA has announced that nearly $539 million of the settlement
amount would be carried out through the litigation escrow account
maintained by Visa. The account would be funded by Visa's class B
shares, owned by BofA and other major banks.
Thirteen more banks, including
Wells Fargo & Co.
JPMorgan Chase & Co
) are involved in this antitrust litigation. The overall settlement
is estimated to be worth $7.25 billion, by far the largest in the
history of antitrust settlements.
However, the plaintiffs including
Wal-Mart Stores Inc.
) have not received this settlement very well. They are
dissatisfied with the fact that the settlement does not minimize
their difficulty of understanding the ways through which the
interchange fees are fixed. Moreover, they are concerned that this
would strip them of their rights to sue payment networks in the
The settlement concludes a long-drawn legal hassle and is expected
to be a relief for BofA. Such payouts do affect the financials of a
company; however, at the same time these are effective tools for
Currently, BofA retains a Zacks #3 Rank, which translates into a
short-term Hold rating. Considering the fundamentals, we also
maintain a long-term Neutral recommendation on the stock.