Federal judge rejects $30 billion settlement between Visa, Mastercard and retailers

New York (CNN) — A federal judge overseeing a $30 billion preliminary swipe-fees settlement between Mastercard, Visa and retailers formally rejected the deal Tuesday. The ruling likely means the credit card processors will have to make more concessions to resolve their long-standing dispute with merchants.

Mastercard and Visa, two of the world’s largest credit card networks, reached their proposed multi-billion antitrust settlement with US merchants in March. The settlement would lower swipe fees, or interchange fees, that a retailer must pay when a customer makes a purchase using their card.

The details of Tuesday’s ruling made by Judge Margo Brodie of the US District Court of the Eastern District of New York have not been made public. But a memo released by the court on Tuesday said that she was “not likely to grant final approval” to the preliminary settlement absent any changes.

Retailers typically are charged 2% of the total customer transaction in swipe fees — but they can be as much as 4% for some premium rewards cards, according to industry estimates. The proposed settlement would have lowered those fees by at least 0.04% percentage points for a minimum of three years.

What the preliminary settlement entailed

The proposed settlement, which hinged on final approval from the Eastern District of New York, resulted from a longstanding antitrust class-action lawsuit in 2005.

In the suit, merchants alleged that the card companies and the banks that issue cards with them colluded to charge businesses inflated swipe fees and prevented them from directing their customers to other, cheaper payment options.

Under the preliminary settlement, the card companies denied any wrongdoing and agreed to maintain the swipe fee rates that existed as of December 31, 2023, for a period of five years.

Visa and Mastercard also agreed to remove anti-competitive restrictions so that merchants could suggest other preferred card options to customers going forward.

For one thing, the proposed settlement gave merchants the ability to impose surcharges on customers depending on what kind of Visa or Mastercard card they use. Those surcharges would likely hit cardholders who get rewards such as cash back and airline miles, since those can carry higher swipe fees.

Big retailers at odds with small businesses

Over 90% of the merchants who agreed to the preliminary settlement with Visa and Mastercard were small businesses, according to Visa.

Still, the National Federation of Independent Business viewed it as “temporary relief” for small businesses and not a long-term solution, Jeff Brabant, vice president of federal government relations at NFIB, told CNN in a statement.

Trade groups representing big retailers have been even more outspoken critics.

The Merchants Payments Coalition (MPC) — whose members include supermarkets, retail chains, restaurants, drug stores, convenience stores, gas stations and online merchants focused on payments system reform — blasted the preliminary settlement as being insufficient.

Christopher Jones, an executive committee member of the Merchants Payments Coalition, said it would have enabled the credit card companies to “keep price-fixing swipe fees and blocking competition.”

“Thankfully, the judge made the right call in recognizing what a bad deal this would have been for Main Street merchants and their customers,” Jones said in a statement on Tuesday.

The Retail Industry Leaders Association, a trade group representing a slew of large retailers including Target, CVS, Dollar General, similarly applauded Tuesday’s ruling. “Leading retailers are grateful that Judge Brodie saw through the façade of the proposed settlement and understood that it would not provide the meaningful change that is needed to correct the competitive imbalance in the interchange ecosystem,” RILA said in a statement.

A Mastercard spokesperson told CNN in an emailed statement they were “disappointed” by the ruling. “We believe the settlement presented a fair resolution of this long-standing dispute, most notably by giving business owners more flexibility in how they manage their card acceptance activities. We will pursue our options to ensure a proper resolution of this matter.”

Visa did not immediately respond to CNN’s request for a comment.

Glenn Licht, owner of Pescatore Seafood Company in New York, had been anxiously awaiting the final ruling on the settlement.

Licht’s business operates two seafood stores in New York City’s iconic Grand Central Terminal market. One sells prepared seafood for takeaway, and the other is a grab-and-go sushi store.

Pre-Covid, Licht said the businesses were 80% cash and 20% credit card payments. “That’s totally flipped. Now it’s a minimum of 80% credit cards and the rest is cash,” he said. That means with his significant exposure to swipe fees, those extra charges can add up and can affect profitability.

“As a small retailer, you feel the effects of that,” he said. And separate to his two seafood shops, the company also has an online seafood business. “We also ship seafood nationwide. However, that business is 100% credit cards,” Licht said.

Licht said he never believed that the $30 billion settlement would “trickle down” to him as a small merchant in a way that “would have been a gamechanger.”

“I don’t think the ruling will move the needle much on our financial statement,” he said.

This story has been updated with additional developments.

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