On Tuesday, a U.S. judge rejected a $30 billion antitrust settlement involving Visa and Mastercard, which aimed to limit the fees they charge merchants who accept their credit and debit cards.
U.S. District Judge Margo Brodie in Brooklyn denied the request by a group of merchants, primarily small businesses, for preliminary approval. She indicated she was unlikely to grant final approval to the settlement.
The proposed settlement faced opposition from many merchants and trade groups, including the National Retail Federation. They argued that the card fees would remain excessively high and that Visa and Mastercard would continue to wield too much control over card transactions.
This decision potentially forces Visa and Mastercard to either negotiate a more favorable settlement for the merchants or face a trial.
Judge Brodie will provide a written opinion detailing her reasoning after allowing merchants and the card networks until June 28 to propose redactions.
Visa and Mastercard expressed disappointment with the decision, while lawyers for the merchants seeking to settle did not immediately respond to requests for comment.
The settlement, announced on March 26, was intended to resolve most litigation that began in 2005 concerning swipe fees, also known as interchange fees. These fees are paid by merchants to accept Visa and Mastercard, and the card networks set them. Typically ranging from 1.5% to 3.5% of each transaction, these fees amounted to approximately $72 billion in 2023, according to the Nilson Report. They generate profits for banks and other card issuers, which often funnel these fees into rewards programs that encourage consumers to spend more.
The settlement proposed a reduction in the average swipe fee by at least 0.04 percentage points for three years, and to remain at least 0.07 percentage points below the current average for five years.
Small and Temporary Relief
Additionally, Visa and Mastercard agreed to cap rates for five years and to remove anti-steering provisions that prevent merchants from directing customers to cheaper cards. Merchants would have gained more discretion to offer discounts or impose surcharges.
However, many merchants objected to rules that forbade them from informing customers about the varying costs of different cards, as well as steering customers towards cheaper options.
Critics also argued that these fees result in higher prices for consumers, who sometimes pay less by using cash.
Trade groups claimed the settlement would have provided only minimal and temporary relief and made it challenging for merchants to mount future legal challenges.
“It didn’t address the problem of Visa, Mastercard, and banks forming a cartel to issue credit cards and set fees, such that merchants have to accept all cards or none,” Doug Kantor, general counsel of the National Association of Convenience Stores, said in an interview. “The next step, presumably, is a trial.”
Judge Brodie had indicated at a June 13 hearing that she would likely reject the settlement.
Some U.S. senators have promoted legislation, the Credit Card Competition Act, to allow merchants to use other payment networks to process Visa and Mastercard transactions.
Judge Brodie’s decision does not impact an earlier $5.6 billion class action swipe fee settlement involving Visa, Mastercard, and approximately 12 million merchants. A federal appeals court in Manhattan upheld that settlement in March 2023, seven years after overturning a $7.25 billion settlement that had short-changed some retailers.
The case in question is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, U.S. District Court, Eastern District of New York, No 05-md-01720.
The ongoing legal battle over swipe fees highlights the tension between major card networks and the merchants who feel burdened by the high costs of accepting credit and debit card payments. The outcome of this case could significantly influence the future of card transaction fees and the broader financial landscape for both merchants and consumers. If Visa and Mastercard are required to negotiate a new settlement or face trial, the implications could ripple across the industry, potentially leading to lower fees and more transparent practices. This case remains a critical focal point in the ongoing discourse over fair pricing and competition in the payment processing industry.
