Federal judge rejects $30 billion settlement between Visa, Mastercard and retailers

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CNN
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A federal judge overseeing a preliminary $30 billion pass-through fee settlement between Mastercard, Visa and retailers formally threw out the deal Tuesday.

Mastercard and Visa, two of the world’s largest credit card networks, concluded their proposed multibillion antitrust settlement with U.S. merchants in March. The regulation would reduce the swipe fees, or interchange fees, that a retailer must pay when a customer makes a purchase with their card.

Details of Tuesday’s ruling by Judge Margo Brodie of the U.S. District Court for the Eastern District of New York have not been made public. But a memo released by the court Tuesday says it is unlikely to grant final approval to the preliminary settlement absent changes.

Retailers are typically charged 2% of the total customer transaction amount in swipe fees, but they can be as high as 4% for some premium rewards cards, according to industry estimates. The proposed regulations would have reduced these fees by at least 0.04% for a minimum of three years.

The proposed settlement, which was contingent on final approval from the Eastern District of New York, resulted from a long-running 2005 antitrust class action lawsuit.

In the lawsuit, the merchants alleged that the card companies and the banks that issue cards with them colluded to charge the companies inflated swipe fees and prevented them from directing their customers to other, less expensive payment options. expensive.

As part of the preliminary settlement, the card companies denied any wrongdoing and agreed to keep the swipe fee rates in effect as of December 31, 2023 for a period of five years.

Visa and Mastercard also agreed to remove anti-competitive restrictions so merchants can now suggest other preferred card options to customers.

On the one hand, the proposed regulation gives merchants the ability to impose surcharges on customers based on the type of Visa or Mastercard they use. These surcharges would likely hit cardholders who earn rewards like cash back and airline miles, as those can result in higher swipe fees.

According to Visa, more than 90% of merchants who agreed to the preliminary settlement with Visa and Mastercard were small businesses.

Trade groups representing major retailers, however, have expressed opposition to the measure.

The Merchants Payments Coalition (MPC) – whose members include supermarkets, retail chains, restaurants, pharmacies, convenience stores, gas stations and online merchants focused on payment system reform – ​​criticized the preliminary settlement as insufficient.

Christopher Jones, a member of the executive committee of the Merchants Payments Coalition, said this would have allowed credit card companies to “continue to price transfer fees and block competition.”

“Fortunately, the judge did the right thing in recognizing what a bad deal this would have been for Main Street merchants and their customers,” Jones said in a statement Tuesday.

The Retail Industry Leaders Association, a trade group representing many major retailers, including Target, CVS and Dollar General, also applauded Tuesday’s decision. “Major retailers are grateful that Judge Brodie saw through the facade of the proposed settlement and understood that it would not bring about the meaningful change needed to correct the competitive imbalance in the exchange ecosystem,” RILA said in a statement. communicated.

A Mastercard spokesperson told CNN in an emailed statement that it was “disappointed” by the decision. “We believe the settlement provides a fair solution to this long-standing dispute, including giving business owners more flexibility in how they manage their card acceptance businesses. We will pursue our options to ensure an appropriate resolution of this matter.

Visa did not immediately respond to CNN’s request for comment.

Glenn Licht, owner of Pescatore Seafood Company in New York, eagerly awaited the final decision on the settlement.

Licht’s company operates two seafood stores in New York’s iconic Grand Central Terminal market. One sells take-out prepared seafood and the other is a take-out sushi shop.

Before Covid, Licht said businesses made 80% cash and 20% credit card payments. “It’s totally reversed. Now it’s a minimum of 80% credit cards and the rest is cash,” he said. This means that with its significant exposure to swipe fees, these additional fees can add up and affect profitability.

“As a small retailer, you feel the effects,” he said. In addition to its two seafood stores, the company also has an online seafood business. “We also ship seafood nationwide. However, this business is 100% credit card business,” Licht said.

Licht said he never believed the $30 billion settlement would “trickle down” to him as a small trader in a “game-changing” way.

“I don’t think the decision will move our financial statements much,” he said.

This is a developing story and will be updated.