Judge says Visa and Mastercard can likely withstand larger swipe fee settlement

A federal judge said Visa and Mastercard could probably resist a “substantially greater” settlement with merchants who said they overpaid on swipe costs than the $30 billion agreement she denied this week.

Judge’s Assessment

A federal judge has indicated that Visa and Mastercard could likely endure a “substantially greater” settlement than the $30 billion accord she rejected this week.

U.S. District Judge Margo Brodie in Brooklyn made this assessment in an 88-page opinion released on Friday, following her rejection of the preliminary settlement three days earlier.

Rejected Settlement

The rejected accord, which covered more than 12 million merchants, was intended to lower and cap swipe fees, also known as interchange fees, paid to handle Visa and Mastercard transactions.

However, Judge Brodie criticized the estimated $6 billion in annual savings for merchants as “paltry” compared to the approximately $100 billion in fees they paid in 2023.

Judge’s Reasoning

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“Without evidence of Visa’s and Mastercard’s profitability, the court cannot say with certainty that defendants can withstand a greater judgment; however, the evidence strongly suggests that they could withstand a substantially greater judgment,” Judge Brodie wrote.

Antitrust Litigation Background

The antitrust litigation against Visa and Mastercard began in 2005 and may proceed to trial absent a new settlement. Both companies have expressed disappointment with the rejection.

Visa maintains that a direct resolution with merchants is the best way forward, while Mastercard believes the settlement would have fostered competition and provided significant benefits to millions of businesses.

Proposed Settlement Terms

The proposed accord would have reduced the typical 1.5% to 3.5% swipe fee by 0.04 percentage points for three years, capped fees for five years, and given merchants more flexibility to impose surcharges.

However, Judge Brodie deemed these changes insufficient for “best possible” recovery.

She noted that the fees would remain significantly above where they would be without the alleged antitrust violations and that merchants would still be burdened by the “Honor All Cards” rule, which requires them to accept all Visa and Mastercard cards or none at all.

Conclusion

The rejection of the $30 billion settlement signals that Visa and Mastercard may face a larger judgment in the ongoing antitrust litigation.

The case highlights the ongoing debate over swipe fees and their impact on merchants, with significant implications for the payment processing industry.