Settlement Disputes Continue in Credit Card Fee Case

Nine years ago, a substantial $5.7 billion settlement was turned down in one of the largest class action lawsuits ever. This figure ballooned to $30 billion last year, only to be dismissed again. Now, it has grown to over $200 billion, prompting doubts about whether this will finally put an end to almost two decades of conflict.

This month, Visa Inc. and Mastercard Inc. made another attempt to resolve a dispute with thousands of retailers by proposing a new deal that seeks to overhaul the fees that form the foundation of the credit card industry. However, merchants and politicians have swiftly voiced their opposition.

The ultimate decision will rest with U.S. District Judge Brian Cogan. He took over this longstanding case after Judge Margo Brody annulled a prior settlement last year, asserting that financial institutions could absorb more significant losses.

At the core of the issue are the fees that merchants pay to process credit card transactions. While these fees may seem minor in isolation, they accumulate to substantial annual expenses. If this settlement goes through, consumers might find that some retailers choose not to accept high-end credit cards.

“Retailers nationwide opposed this settlement and didn’t consent to it,” remarked Doug Cantor, executive director of the Merchant Payments Coalition, which advocates for retailers against these fees. “A similar troubling proposal was rejected last year, and merchants are hopeful the court will dismiss this one too.”

Walmart, the largest retailer globally, indicated in a recent filing that it is likely to challenge this deal.

“Chief Judge Brody previously did not give initial approval to an earlier settlement, largely for reasons also mentioned in Walmart’s objections,” they stated.

Walmart isn’t alone in its opposition. Other major retailers, through the National Retail Federation (NRF), expressed concerns that the card industry “simply doesn’t understand or care.” This group, along with other commercial associations, conveyed in a recent filing that they were caught off guard by the announcement of the settlement and deemed it potentially harmful for the industry, with effects that might be difficult to reverse.

The National Restaurant Association also took a stand against the settlement.

“Restaurants represent the quintessential small business, often operating on the slimmest margins of any Main Street entity and lacking leverage in a duopoly system,” stated Sean Kennedy, executive vice president of communications for the group.

While Visa and Mastercard refrained from commenting on the latest criticisms, they previously stated that the settlement would provide retailers of various sizes with “greater flexibility and choices in managing customer payments” and “meaningful relief.”

Senator Dick Durbin, a Democrat from Illinois and a long-standing critic of Visa and Mastercard, slammed the settlement, accusing the firms and their banking partners of profiting off fees while everyday Americans struggle. He had previously succeeded in limiting the fees that companies can impose when accepting debit cards, a measure that was included in the Dodd-Frank Act post-2008 financial crisis.

“While reducing swipe fees and increasing card options for merchants is positive, I consider this settlement inadequate,” he stated on Monday.

Judge Cogan, formerly a civil litigator and partner at a law firm, has now taken the reins of this case, which originated in 2005. He assumed responsibility in early September.

Cogan previously oversaw high-profile cases, including the trial of Joaquín “El Chapo” Guzmán in 2019, who was found guilty of heading the notorious Sinaloa cartel, leading to a life sentence. He also managed the 2022 trial of Tom Barrack, who was acquitted of attempting to influence Donald Trump’s campaign as an agent for the UAE, with Barrack later praising the judge and the legal system.

The deadline for appeals is December 12, and it seems unlikely that Cogan will hint at his decision regarding the credit card settlement before the year’s end.

Justin Teresi, an antitrust litigation and policy analyst at Bloomberg Intelligence, posited that a major retailer’s complaint could hinder the settlement’s progress again.

“Since this relief involves mandatory class divisions without an opt-out option like a monetary settlement, courts might be wary about whether all concerns from sellers have been adequately addressed,” he noted.