What is the total financial impact of this settlement on MasterCard?

MasterCard's total pre-tax cash obligation for these settlements is $790 million. This includes an additional $20 million pre-tax charge to be recognized in the second quarter of 2012, in addition to the $770 million charge previously recorded in the fourth quarter of 2011.

What are the key operational changes resulting from this settlement?

The settlement involves a 10 basis point reduction in default credit interchange rates for U.S. merchants for a period of eight months. Additionally, MasterCard's No Surcharge Rule will be modified to allow U.S. merchants to surcharge MasterCard credit cards, subject to certain defined limitations such as disclosure requirements and caps on the surcharge amount.

What does the settlement mean for future litigation against MasterCard?

The settlements will provide MasterCard and its customer financial institutions with a broad release of all claims that were alleged or could have been alleged by the merchants concerning MasterCard's interchange structure, merchant acceptance rules, and the future effect of MasterCard's existing rules and practices.

What was MasterCard's share of the settlement based on?

MasterCard's financial obligation is based on its allocated responsibility of 12% of the global settlement, as established in judgment and settlement sharing agreements executed in February 2011 with Visa and certain customer banks.

MA 8-K: Material Agreements

Summary

MasterCard Inc. (MA) filed an 8-K on July 16, 2012, to report a significant development regarding a U.S. merchant class litigation settlement. The company, along with its operating subsidiary, entered into a Memorandum of Understanding (MOU) on July 13, 2012, to settle the ongoing MDL 1720 class action lawsuit in the Eastern District of New York. This settlement also includes an agreement in principle to resolve claims from individual merchant plaintiffs. Crucially for investors, the total cash portion of the settlement to be paid by MasterCard amounts to $790 million on a pre-tax basis. This represents an additional $20 million pre-tax charge for the second quarter of 2012, on top of the $770 million previously recognized in the fourth quarter of 2011. This obligation reflects MasterCard's 12% share of a larger global settlement, which includes both the class settlement and settlements with individual merchants. The agreement entails a 10 basis point reduction in default credit interchange rates for U.S. merchants for eight months and a modification of MasterCard's No Surcharge Rule to allow merchants to surcharge credit cards under certain conditions. This settlement provides MasterCard and its financial institution partners with a broad release from all related claims.

Key Highlights

1MasterCard has entered into a Memorandum of Understanding (MOU) to settle U.S. merchant class litigation (MDL 1720).
2The company has also reached an agreement in principle to settle claims from individual merchant plaintiffs.
3MasterCard's total pre-tax cash obligation for the settlements is $790 million.
4An additional $20 million pre-tax charge will be incurred in Q2 2012, building on a prior $770 million charge from Q4 2011.
5MasterCard's responsibility represents 12% of the overall settlement obligations, reflecting a prior judgment and sharing agreement.
6The settlement includes a 10 basis point reduction in default credit interchange rates for U.S. merchants for eight months.
7MasterCard's No Surcharge Rule will be modified to permit U.S. merchants to surcharge MasterCard credit cards under specific limitations.
8The settlements provide a broad release of claims against MasterCard and its financial institution partners.

Mastercard Inc 8-K Report, Material Agreement (Jul 16, 2012)

Summary

Key Highlights

Frequently Asked Questions