US Judge Rejects $30 Billion Visa, Mastercard Swipe Fee Settlement

A US judge has dismissed a $30 billion settlement proposed by Visa and Mastercard, intended to resolve a longstanding lawsuit over swipe fees. This decision affects a large number of merchants who had sought compensation for the fees charged by the credit card giants. The rejection means the case will likely continue, impacting the ongoing legal battles over the fees merchants pay to accept credit card payments.

Boston Brand Media brings you the latest news - On Tuesday, a U.S. judge declined a $30 billion antitrust settlement where Visa (V.N) and Mastercard (MA.N) had agreed to cap the fees they impose on merchants who accept their credit and debit cards.

U.S. District Judge Margo Brodie in Brooklyn expressed doubt about granting final approval to the settlement and thus rejected the preliminary approval request from a group of merchants, mainly small businesses.

Numerous merchants and trade organizations, including the National Retail Federation, opposed the agreement, arguing that card fees would still be excessively high and that Visa and Mastercard would maintain excessive control over card transactions.

This decision might compel Visa and Mastercard to negotiate a more merchant-friendly settlement or proceed to trial.

Judge Brodie will release a written opinion detailing her reasoning after allowing merchants and the card networks until June 28 to suggest redactions.

Visa and Mastercard expressed disappointment with the ruling. Lawyers representing merchants who supported the settlement did not immediately comment.

Boston Brand Media also found that the settlement, announced on March 26, aimed to resolve most of the litigation that began in 2005 regarding swipe fees, also known as interchange fees, which merchants pay to accept Visa and Mastercard. These fees are set by the card networks.

Typically ranging from 1.5% to 3.5% of each transaction, swipe fees amounted to approximately $72 billion in 2023, according to the Nilson Report. These fees generate significant profits for banks and other card issuers, who often use the funds to support rewards programs that incentivize consumer spending.

The settlement proposed reducing the average swipe fee by at least 0.04 percentage points for three years and maintaining it at least 0.07 percentage points below the current average for five years.

Small and Temporary Relief

Visa and Mastercard also agreed to cap rates for five years and eliminate anti-steering provisions that prevent merchants from directing customers to less expensive cards. Additionally, merchants would have gained more flexibility to offer discounts or impose surcharges.

Many merchants opposed the rules that prohibited them from informing customers about the higher costs associated with some cards and from directing them to cheaper alternatives. Critics also argued that these fees resulted in higher prices for consumers, who sometimes pay less when using cash.

Trade groups contended that the settlement offered only minimal and temporary relief and would hinder future legal challenges. Doug Kantor, general counsel of the National Association of Convenience Stores, stated in an interview, "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. The next step, presumably, is a trial."

Judge Brodie had indicated during a June 13 hearing that she would likely reject the settlement.

Some U.S. senators have advocated for the Credit Card Competition Act, which would allow merchants to use alternative payment networks for processing Visa and Mastercard transactions.

The judge's decision does not impact a previous $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, following the rejection of a $7.25 billion settlement seven years earlier for shortchanging some retailers.

The case is titled In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, U.S. District Court, Eastern District of New York, No 05-md-01720.

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Source: Reuters‍