Visa and Mastercard rejected 30 Billion swipe fee increase
NEW YORK (APRNEWS) - A U.S. judge has rejected a $30 billion antitrust settlement involving Visa and Mastercard over the fees they charge merchants for credit and debit card transactions. This decision represents a significant shift in the ongoing legal battle that began in 2005.
Background of the Settlement
The proposed settlement aimed to address litigation concerning the so-called swipe fees, also known as interchange fees, that merchants pay to accept Visa and Mastercard. These fees, ranging from 1.5% to 3.5% per transaction, amounted to approximately $72 billion in 2023 according to the Nilson Report. The fees generate profits for banks and other card issuers, which in turn fund rewards programs encouraging consumer spending.
The settlement, announced on March 26, intended to reduce the average swipe fee by at least 0.04 percentage points for three years and maintain it 0.07 percentage points below the current average for five years. However, many merchants and trade groups, including the National Retail Federation, opposed the agreement, arguing that it would not sufficiently lower fees and would leave too much control with Visa and Mastercard.
Judge's Decision and Its Implications
U.S. District Judge Margo Brodie in Brooklyn denied the request for preliminary approval of the settlement. Judge Brodie's decision could force Visa and Mastercard to negotiate a more favorable settlement for merchants or face a trial. She has given the parties until June 28 to propose redactions before issuing a written opinion explaining her reasoning.
Both Visa and Mastercard expressed disappointment with the outcome. The settlement's rejection underscores the ongoing tension between merchants seeking lower transaction fees and card networks aiming to maintain their fee structures.
Industry Reaction and Future Steps
Trade groups have argued that the proposed settlement offered only small and temporary relief to merchants and made it challenging to pursue future legal actions against the card networks. Doug Kantor, general counsel of the National Association of Convenience Stores, stated, "The next step, presumably, is a trial."
Some U.S. senators are advocating for the Credit Card Competition Act, which would allow merchants to use other payment networks for processing Visa and Mastercard transactions. This legislative effort reflects broader concerns about the dominance of major card networks in the financial sector.
The judge's decision does not affect a prior $5.6 billion class action swipe fee settlement between Visa, Mastercard, and about 12 million merchants. A federal appeals court upheld this earlier settlement in March 2023.
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.
Impact on the Financial Sector
This ruling highlights the ongoing scrutiny of major financial institutions and their practices. The decision could influence future regulations and litigation concerning interchange fees and other financial services. For merchants, particularly small businesses, the ruling represents a potential shift in their favor, offering a chance to negotiate more equitable terms.
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