Card brands, merchants settlement may get scrapped

An agreement intended to put to rest an antitrust lawsuit filed by merchants against Visa and Mastercard could soon be sent to a scrapheap, after the judge overseeing the lawsuit indicated she wasn't inclined to approve the proposed settlement.

The card brands made a big to-do about the settlement, heralded in March 2024. Valued at $30 billion, the settlement addressed credit and debit card fees, which merchants claimed violated antitrust laws. However, U.S. District Court Judge Margo Brodie, who hears cases in the Eastern District of New York, told lawyers for the two camps during a June 13 hearing that she will "likely not approve the settlement," according to court records and as reported by numerous news outlets.

The second part of split settlement

Visa, Mastercard and card-issuing banks already settled a portion of the lawsuit in 2018, resulting in payouts of about $6 billion to merchants. This latest settlement proposal focuses on the remaining allegations contained in a 2005 class-action lawsuit alleging the card brands' and issuing banks' pricing and rules amount to antitrust activities.

At the heart of the proposed settlement is an agreement to roll back interchange by 4 basis points (0.04 percent) for three years. It also would eliminate the card brands' anti-steering rules, allow surcharging of credit card transactions up to 3 percent, and allow merchant buying groups to negotiate interchange directly with Visa and Mastercard. It also earmarked $15 million for an educational campaign to help merchants make the most of the settlement.

The proposed settlement would do nothing to hold in check network fees, however. In fact, Mastercard raised its network fee from 13 basis points (0.13 percent) to 14 basis points (0.14 percent) just weeks after agreeing to the proposed settlement.

Matt Luciani, an attorney with Global Legal Law Firm, who has studied the proposed settlement said it seemed to favor the card brands. The 4 basis point reduction in interchange, for example, is not much more than a drop in the bucket in light of the $172 billion in interchange fees collected last year. "People are fighting to get this done, but the judge suggested it [the proposed settlement] is unfair," he said.

Leading merchant trade groups expressed similar sentiments

"The judge made a strong statement in support of justice for merchants and consumers," said Christopher Jones, senior vice president for government relations at the National Grocers Association and a member of the executive committee of the Merchants Payments Coalition.

"We appreciate that there was recognition of the fatal flaws [in the proposal] that would have made the settlement a bad deal for Main Street rather than a correction of credit card company violations of the antitrust laws," he said. "The proposed settlement would have done nothing to address the problem of how Visa and Mastercard centrally fix swipe fees."

Echoing that settlement, the National Retail Federation, in a statement, said any final agreement needs to go beyond just money and address the way interchange gets set as well.

Judge Brodie indicated a final decision on the proposed settlement would be handed down this week or next.

If the judge rejects the proposed settlement and the case goes to trial, Luciani predicted it would likely result in a ruling that is more favorable to merchants than the proposed settlement.

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