US judge rejects Visa, Mastercard $30 billion swipe fee settlement

By Jonathan Stempel

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 fees they charge merchants who accept their credit and debit cards.

U.S. District Judge Margo Brodie in Brooklyn concluded that she was not likely to grant final approval to the settlement, and therefore denied the plaintiffs’ request for preliminary approval.

Her decision could force Visa and Mastercard to negotiate a settlement more favorable to merchants, or go to trial.

The settlement announced in March was intended to resolve most litigation that began in 2005 over so-called swipe fees, also known as interchange fees, that merchants pay to accept Visa and Mastercard, and which the card networks set.

Those fees totaled about $72 billion in 2023, according to the Nilson Report. They generate profits for bank and other card issuers, which funnel many of the fees into rewards programs that encourage consumers to spend more.

Many merchants and retail trade groups viewed the fees, typically 1.5% to 3.5%, as excessive.

They also objected to rules forbidding merchants from telling customers why some cards cost more than others, and steering them toward cheaper cards.

Critics also say the fees lead to higher prices for consumers, who are now sometimes charged less for using cash.

The settlement called for the average swipe fee to fall at least 0.04 percentage points for three years, and stay at least 0.07 percentage points below the current average for five years.

Visa and Mastercard also agreed to cap rates for five years and remove anti-steering provisions, while merchants got more discretion to offer discounts or impose surcharges.

Several trade groups, including the National Retail Federation, objected to the settlement.

They said the relief for merchants was small and temporary, and made it difficult for them to mount future legal challenges, while still letting Visa and Mastercard dictate swipe fees.

Some U.S. senators have promoted legislation, the Credit Card Competition Act, to let merchants use other payment networks to process Visa and Mastercard transactions.

The rejection does not affect a separate $5.6 billion class action swipe fee settlement among Visa, Mastercard and about 12 million merchants.

A federal appeals court in Manhattan upheld that accord in March 2023, seven years after throwing out a $7.25 billion settlement that short-changed some retailers.

The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, U.S. District Court, Eastern District of New York, No 05-md-01720.