Judge Rejects $30 Billion Visa, Mastercard Swipe Fee Deal

U.S. District Judge Margo Brodie on Tuesday rejected a $30 billion antitrust settlement involving Visa and Mastercard. The proposed settlement, which aimed to limit fees charged to merchants who accept their credit and debit cards, was not granted preliminary approval, according to a Reuters report.

Judge Brodie’s decision suggests that she is unlikely to approve the settlement in its final form. This move may force Visa and Mastercard to either negotiate a more favorable settlement for merchants or prepare for a trial.

The settlement, initially announced in March, sought to address ongoing litigation that began in 2005 over interchange fees, commonly referred to as swipe fees. These fees, which merchants must pay to accept Visa and Mastercard transactions, are set by the card networks and amounted to approximately $72 billion in 2023, as reported by the Nilson Report.

The swipe fees are a major revenue source for banks and other card issuers, who often reinvest a portion of these fees into rewards programs to encourage increased consumer spending. However, many merchants and retail trade groups argue that the fees, typically ranging from 1.5% to 3.5%, are excessively high. They also object to rules that prevent merchants from disclosing the varying costs of different cards to customers and from steering them towards cheaper payment options.

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Critics of the current fee structure argue that it leads to higher prices for consumers, who may sometimes pay less when using cash. The rejected settlement had proposed to reduce the average swipe fee by at least 0.04 percentage points for three years and maintain a reduction of at least 0.07 percentage points below the current average for five years. Additionally, Visa and Mastercard had agreed to cap rates for five years and eliminate anti-steering provisions, granting merchants greater discretion to offer discounts or impose surcharges.

Despite these concessions, several trade groups, including the National Retail Federation, opposed the settlement. They contended that the proposed relief for merchants was insufficient and temporary, complicating future legal challenges against Visa and Mastercard while still allowing the card networks to set swipe fees. Some U.S. senators have also advocated for the Credit Card Competition Act, which would enable merchants to use alternative payment networks for processing Visa and Mastercard transactions.

This rejection does not impact a separate $5.6 billion class action settlement involving Visa, Mastercard, and around 12 million merchants. This agreement was upheld by a federal appeals court in Manhattan in March 2023, following the overturning of a previous $7.25 billion settlement that had short-changed some retailers.

Source: Reuters