Federal Judge Blocks Massive Swipe Fee Settlement Between Visa and Mastercard

By Jack Phillips

A federal judge on Tuesday rejected a $30 billion antitrust settlement between Mastercard and Visa in which they had agreed to limit fees they charged for retailers who take their debit and credit cards.

U.S. District Judge Margo Brodie in New York wrote that she was “not likely to grant final approval” of the two corporations’ settlement, which was announced in March. As a result, she denied the companies’ request for preliminary approval. The judge has not yet issued a written ruling.

The judge then directed the credit card companies and other parties to submit proposed redactions before June 28 and explain why.

In March, the two companies said their agreement would lower fees, known as interchange fees, that a merchant must pay when a customer uses one of their cards.

A number of trade and merchant groups had opposed the Visa–Mastercard agreement, arguing that the card-use fees would still be too high and that the two corporations would retain too much control over the industry.

The fees range from 1.5 to 3.5 percent, and they totaled about $172 billion in 2023 according to the Nilson Report. The fees generate profits for banks and other card issuers, which often funnel the fees into rewards programs that encourage consumers to spend more.

Earlier this month, Judge Brodie had indicated that she would rule against the companies. “The Court will issue a written decision, but informed the parties that it will likely not approve the Settlement,” a filing in federal court stated.

The earlier filing drew praise from the Merchants Payments Coalition and similar groups.

“This proposed settlement would have done nothing to address the problem of how Visa and Mastercard centrally price fix swipe fees,” Christopher Jones, the head of the group, said in a statement in mid-June. “Instead, the settlement would have locked in cartel pricing.”

The settlement suffered from “fatal flaws” that would have made it a “bad deal for Main Street rather than a correction of credit card industry violations of the antitrust laws,” Mr. Jones said. “It’s past time for Congress to pass the Credit Card Competition Act to fix this broken market.”

Under the deal, the companies and merchants that agreed to the plan said it would reduce swipe fees for three years and place a cap on rates for five years, estimating that around $29.79 billion would be saved by merchants. The settlement specifically 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.

In March, when the settlement was announced, Visa said that it would “address true pain points small businesses have identified” after years of litigation. “The settlement will reduce credit interchange rates for U.S. merchants, comprised largely of small businesses,” the firm said.

Meanwhile, Mastercard said that their settlement would ensure there are “no increases for five years” and would bolster “strong, ongoing competition, and innovation.”

Critics of the plan, including the National Retail Federation, argued that the settlement would have given only temporary relief for merchants and would make it hard to mount future challenges against the two companies.

“While the agreement would provide only temporary relief, it includes a ‘virtually limitless’ ban on future merchant litigation over swipe fees and has no opt-out provision for merchants who do not agree with its terms,” the organization contended in a news release issued in April. “Even businesses that do not yet exist would be barred from suing, a provision that could violate the Sherman Antitrust Act.”

The Epoch Times contacted Visa and Mastercard for comment on Tuesday. Neither company has issued a public statement on the judge’s ruling.

Reuters contributed to this report.

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