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NEW YORK (AP) -- Visa followed MasterCard's lead and settled a lawsuit filed by thousands of major U.S. retailers over their increasingly popular debit cards. The two card issuers agreed to pay $3 billion and lower transaction fees.
The deal was hailed by the retailers' lawyer as a major victory for merchants and their customers. Among those bringing the suit were such giants as Wal-Mart and Sears.
"The world of debit is about to change for the better, for merchants and for consumers," said the retailers' lead attorney, Lloyd Constantine, after signing a deal with Visa USA on Wednesday night. "Five million merchants will now get relief from excess fees that were forced down their throats."
The Visa deal calls for the company to pay roughly $2 billion to the retailers and reduce debit card fees, Constantine said. MasterCard International will pay $1 billion and also reduce fees.
MasterCard settled with the retailers just as the trial in the lawsuit was to begin Monday, leaving Visa to fight the case on its own. A jury was selected, but then U.S. District Judge John Gleeson postponed opening statements Wednesday, saying the two sides were working on a settlement.
The two card companies could have faced billions of dollars in damages if they lost at trial.
The retailers had claimed that Visa and MasterCard trapped them into paying high fees by demanding that stores that accept their credit cards also accept their debit cards.
Visa USA said in a statement that it had reached "an important agreement in principle" with the plaintiffs and would change its debit card policies.
"We believe this settlement is a reasonable and responsible resolution that serves the interests of consumers, merchants and our member financial institutions," said Daniel Tarman, a Visa vice president.
MasterCard's general counsel, Noah Hanft, said his company was satisfied with the outcome.
"We're pleased that we're able to come to an understanding with the merchants community," he said. "It's good to be able to move forward without litigating this case in the courts."
Gleeson still must approve the deals, which include immediate $25 million payments.
Tarman said Visa would modify its "honor all cards" policy and that, beginning in January, merchants can decide whether to continue to accept Visa's debit cards. Visa and MasterCard said the policy was important so consumers could have more choice. Retailers, who sued seven years ago, said the process ultimately cost consumers money.
The debit cards use a customer's signature to verify a transaction. Many merchants would rather use less expensive, independent networks that clear debit-card transactions using a personal identification number, or PIN.
Analysts said Visa was likely feeling intense pressure to settle the case rather than face a trial that threatened to drag well into summer -- a trial that could have been more difficult without MasterCard fighting alongside.
"It's a terrific day for consumers," David Balto, a former Federal Trade Commission policy director, said. "Consumers will see the benefits of lower prices, greater choice and safer debit card products."
(Copyright 2003 by The Associated Press. All Rights Reserved.)