Wednesday, June 26, 2024
Merchants have been battling the card brands for nearly 20 years over credit and debit card interchange and card brand rules that make it difficult for merchants to sidestep the cost of interchange.
The tussle appeared ready to be put to rest in March 2024 when the parties announced a proposed settlement that would have lowered interchange by four basis points and put the brakes on interchange hikes for four years. It also would have eliminated anti-steering rules and simplify rules for dual pricing.
But Chief Judge Margo K. Brodie of the U.S. District Court for the Eastern District of New York informed the parties on June 25 that she "will likely not approve the settlement." And she ordered them to confer and respond to her by June 30.
Brodie did not elaborate on her reasons for rejecting the proposed settlement but had already signaled her position earlier this month.
The proposed settlement, years in the making, had stemmed from a lawsuit filed in 2005 in which merchants alleged the card brands and card-issuing banks colluded to keep interchange fees inflated and engaged in other anti-competitive practices.
Visa, Mastercard and the banks settled a portion of the lawsuit in 2018, resulting in interchange rebates to merchants totaling about $6 billion. This latest proposed settlement was intended to put to rest the remaining portions of the lawsuit.
Merchant groups welcomed the judge's decision. "Visa and Mastercard wanted a settlement that would let them keep price-fixing swipe fees and blocking competition," said Christopher Jones, chief government relations officer at the National Grocers Association. "Thankfully, the judge made the right call in recognizing what a bad deal this would have been for Main Street merchants and their customers."
The Merchants Payments Coalition, in a statement, said the interchange pricing relief was insufficient since it would have allowed the card brands to increase networks fees "as much as they want at any time, wiping out any reduction in swipe fees."
The group also complained that the proposed four basis point reduction in interchange "would not come close to addressing the fact that the average swipe fee rate has grown two dozen basis points, from 2.02 percent, since 2010."
The National Retail Federation, in a statement, asserted that the settlement's failures stemmed from the fact that the negotiations had "effectively frozen us out" instead working with attorneys for a small group of merchants.
According to court documents, those attorneys represented Target, Grubhub, and a handful of small merchants.
Representatives for the card brands expressed disappointment with the judge's decision. "We continue to believe that the proposed settlement agreement was the appropriate resolution resulting from lengthy and thoughtful discussions with the merchant class," said a spokesman for Visa.
"We believe the settlement presented a fair resolution of this long-standing dispute, most notably by giving business owners more flexibility in how they manage their card activities," said a Mastercard spokesman. "We will pursue our options to ensure a proper resolution of this matter."
"At this point, the only way to bring true relief and fix the broken payments market is for Congress to pass the Credit Card Competition Act," said Jones, who also sits on the MPC executive committee.
That legislation, authored by Senator Dick Durbin, would require large credit card issuing banks to render their cards capable of being processed through two competing networks, only one of which could be owned by Visa or Mastercard. 
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