“This is a violation of the federal law,” said Judge Margo Brody of the U.S. District Court for the Eastern District of New York. In your notes Judge Brody said it was “unlikely” that he would approve a final settlement and denied the request to approve the tentative settlement. He gave the plaintiffs until Friday to negotiate and respond to the ruling.
Visa and Mastercard will likely be forced to either renegotiate settlements with retailers or go to court.
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Brody did not give a reason for his refusal, but had already made his position clear on June 13.
Visa and Mastercard expressed disappointment with the judge’s decision. Mastercard spokesman Will O’Connor said the settlement brought about a “fair resolution” to a 19-year-old dispute. Visa similarly called the settlement an “appropriate resolution” that came after “lengthy and thoughtful discussions” with merchants, spokesman Fletcher Cook said.
Retailers typically pay credit card companies a swipe fee of 1.5% to 3% for each customer transaction. The proposed settlement required them to reduce the average swipe fee by at least 0.04% over three years and to keep it at least 0.07% below the current average over five years. The settlement also prohibited the credit card companies from increasing swipe fees through 2030.
On the other hand, businesses could have charged customers surcharges based on which Visa or Mastercard card they used, enticing them to use cheaper payment methods.
The settlement stemmed from a 2005 antitrust class action lawsuit against Visa, Mastercard, and several U.S. banks that alleged that merchants paid excessive fees to accept credit and debit payments from the card companies. Merchants alleged that the banks engaged in de facto price fixing in setting the fees, and some merchants opposed the settlement, arguing that the agreement would leave fees too high and provide only temporary relief for the businesses.
Credit card companies counter that swipe fees cover the costs of processing and authorizing payments.
Stephanie Martz, chief administrative officer and general counsel for the National Retail Federation, a retailers’ trade group, said the settlement allows credit-card companies to choose whether to raise other fees for merchants to make up for lost revenue or wait until the settlement expires and then raise them again.
“We don’t think it accomplished anything,” Martz said. “Now it’s up to Visa and Mastercard. If they want to come back and really address the issues that we’ve identified over the last 20 years, we’re absolutely open to it. But if they don’t, we’ll see them in court.”
Doug Cantor, general counsel for the National Association of Convenience Stores, another retail trade group, said the judge rejected the settlement because he acknowledged it “didn’t come close to resolving” the issues between the card companies and retailers.
“Visa and MasterCard have organized all the banks that issue their cards into a cartel and then set that cartel’s prices in an all-or-nothing situation that impacts the economy, Main Street businesses and consumers,” Cantor said. “The judge recognized that this settlement doesn’t actually address any of those issues.”
