U.S. District Judge Margo Brodie in Brooklyn indicated she was unlikely to grant final approval to the settlement, denying a request by a group of primarily small businesses for preliminary approval. Critics, including many merchants and trade groups such as the National Retail Federation, opposed the deal, arguing that card fees would remain excessively high and that Visa and Mastercard would retain significant control over card transactions.
The judge's decision may compel Visa and Mastercard to renegotiate a more favourable settlement with merchants or proceed to trial. Judge Brodie will issue a detailed written opinion explaining her decision following a deadline for merchants and card networks to propose redactions by June 28, 2024.
The proposed settlement aimed to resolve extensive litigation dating back to 2005 over interchange feed – commonly known as swipe fees – that merchants pay for each transaction processed through Visa and Mastercard. These fees, which totalled approximately USD 72 billion in 2023 according to the Nilson Report, contribute substantial profits to banks and card issuers, often funding consumer rewards programs designed to stimulate spending.
Under the proposed terms, average swipe fees were expected to decrease marginally over the next several years, with additional provisions to cap rates and remove restrictions preventing merchants from steering customers towards lower-cost payment options. Despite these measures, critics argued that the settlement offered only minor and temporary relief to merchants while potentially hindering future legal challenges.
The judge's decision does not impact a separate USD 5.6 billion class action settlement reached earlier between Visa, Mastercard, and approximately 12 million merchants, which was upheld by a federal appeals court in March 2023.
Before the recent rejection of the USD 30 billion settlement, the legal saga surrounding Visa and Mastercard's interchange fees has been marked by several pivotal developments. Initially, a USD 7.25 billion settlement reached in 2012 was intended to resolve the long-standing antitrust litigation. However, this agreement faced significant criticism and was ultimately overturned by a federal appeals court in 2016. The court's decision cited concerns that the settlement did not adequately address the breadth of harm suffered by all affected merchants.
Following the rejection of the USD 7.25 billion settlement, negotiations resumed, leading to a revised agreement in 2019 valued at USD 5.6 billion. This settlement aimed to address the court's earlier concerns by providing more equitable compensation to a broader group of merchants affected by Visa and Mastercard's fee practices. Despite initial challenges, the USD 5.6 billion settlement was upheld by a federal appeals court in March 2023 after additional revisions and legal scrutiny.
These successive settlement attempts highlight the complexity and contentious nature of the legal battle over interchange fees. They also underscore the challenges in striking a balance between compensating affected parties, primarily merchants, and addressing broader issues of market competition and consumer pricing within the payment card industry. Each decision and revision has shaped the ongoing legal landscape, influencing subsequent negotiations and judicial scrutiny of future settlement proposals, including the most recent USD 30 billion agreement rejected by Judge Brodie.
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