$25 For You, $80 Million For Them

Visa, MasterCard and Diners Club have recently entered into a settlement agreement in a class action law suit filed in the Southern District of New York, which will affect thousands of Chicagoans. The suit alleges that the credit card companies “conspired to set and conceal fees, typically of 1-3% of foreign transactions, and that Visa and MasterCard inflated their base exchange rates before applying these fees.” Any U.S. cardholder, who traveled abroad and used one of these cards to make a foreign transaction between February 1, 1996 and November 8 2006, is eligible to take part in the settlement.

The class action settlement agreement assumes no guilt on the part of the credit card companies, but does call for them to take steps to redress the complaint. Once the settlement is finalized, the defendants have agreed to more transparency in their billing statements, which will now provide detailed disclosures on foreign transaction fees. The defendants have also agreed to create a $336,000,000 settlement fund to compensate victims of these overcharges. Nationwide, several million cardholders are expected to be eligible to take part in the class. The current suit and settlement come on the heels of several other recent cases, which have resulted in an additional $35.5 million in payments from the credit card companies.

In the current settlement proposal, eligible plaintiffs can submit an “easy” claim form and receive a single payment of $25 once the settlement takes effect. The $25 payment is unrelated to the total amount charged on foreign transactions, and excludes that person from making any future claims. More meticulous travelers, who have access to 10 years of receipts, can submit a more detailed claim to potentially receive a refund of 1%-3% of their total purchases during that period. A traveler who amassed $10,000 in charges over this period could potentially be reimbursed up to $300.

While the third of a billion dollar settlement and changes in disclosure policy prove to be a mild rebuke to the multi-billion dollar credit card companies, the real winners would appear to be the law firms involved in the case, rather than consumers. The two law firms representing the plaintiffs, Coughlin Stoia of San Diego and Berger & Montague of Philadelphia, stand to profit handsomely. The settlement agreement calls for the firms to split a 27.5% share of the $313,000,000 that is expected to remain after deducting costs for administration of the suit. The firms can also claim an additional $5,000,000 for actual expenses incurred in handling the case, bringing their total compensation to a staggering 85 million dollars.

So, while affected Chicagoans, who are the real victims of collusion in this case, will receive a pittance in reimbursement for past over-charges, the boutique law firms will walk away with over $42,000,000 each. It is apparent incongruities like this that have led some to call for regulated limits on contingency fees, and others to wonders if justice, in class action law suits, is really being served.