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Written by Jonathan Stemple
NEW YORK (Reuters) – A U.S. judge on Tuesday rejected a $30 billion antitrust settlement in which Visa (NYSE:) and MasterCard (NYSE:) agreed to limit the fees they charge merchants who accept their credit and debit cards.
US District Court Judge Margo Brody in Brooklyn said she was unlikely to grant final approval for the settlement, and thus rejected a request from a group of traders, most of them small businesses, for preliminary approval.
Many merchants and trade groups, including the National Retail Federation, opposed the agreement, saying card fees would remain too high, while Visa and MasterCard would retain too much control over card transactions.
The decision may force Visa and Mastercard to negotiate a settlement more favorable to merchants, or go to court.
Brody will issue a written opinion explaining its reasons after giving merchants and card networks until June 28 to propose revisions.
Visa and Mastercard said they were disappointed with the outcome. Lawyers for the traders who wanted to settle did not immediately respond to requests for comment.
The settlement announced March 26 was intended to resolve most of the lawsuits that began in 2005 over so-called swipe fees, also known as interchange fees, that merchants pay to accept Visa and MasterCard, and which are set by the card networks.
These fees, which typically range from 1.5% to 3.5% of each transaction, will total about $72 billion in 2023 according to the Nielsen report. They generate profits for banks and other card issuers, which funnel many of the fees into rewards programs that encourage consumers to spend more.
The settlement called for the average rollover fee to decrease by at least 0.04 percentage point for three years, and to remain at least 0.07 percentage point below the current average for five years.
Small and temporary relief
Visa and MasterCard also agreed to cap rates for five years and remove anti-steering provisions that prevent merchants from directing customers to cheaper cards, while merchants would have had more discretion to offer discounts or charge additional fees.
Many merchants have objected to rules that prevent them from telling customers why some cards cost more than others, as well as from directing customers to cheaper cards.
Some critics also said the fees lead to higher prices for consumers, who are sometimes charged less when paying with cash.
Trade groups said the settlement would have given merchants little, temporary relief, and would have made it more difficult for them to file future legal challenges.
“It didn’t address the problem of Visa and MasterCard and the banks forming a union to issue credit cards and set fees, so that merchants have to accept all cards or none,” Doug Cantor, general counsel for the National Association of Convenience Stores, said in an interview.
“The next step is supposed to be a trial,” he added.
Brody had indicated at a hearing on June 13 that she would likely reject the settlement.
Some US senators have promoted legislation, the Credit Card Competition Act, to allow merchants to use other payment networks to process Visa and MasterCard transactions.
The judge’s decision does not affect a previous $5.6 billion class-action fee settlement between Visa, Mastercard and about 12 million merchants.
A federal appeals court in Manhattan upheld that agreement in March 2023, seven years after it overturned a $7.25 billion settlement that changed some retailers.
The case is Antitrust Litigation Concerning Payment and Debit Card Interchange Fees, U.S. District Court, Eastern District of New York, No. 05-md-01720.
