Card giants face pressure as judge rejects $30bn settlement

A federal judge in Brooklyn has rejected a proposed $30 billion settlement between Visa and Mastercard and millions of merchants, stating that the card giants could likely withstand a "substantially greater" payout.

The decision, announced by US District Judge Margo Brodie, deals a significant blow to efforts to resolve a long-running antitrust dispute over swipe fees.

In her 88-page opinion, Judge Brodie criticised the estimated $6 billion in annual savings for merchants as "paltry" compared to the approximately $100 billion in fees paid to accept Visa and Mastercard transactions in 2023. The judge noted that while she couldn't determine with certainty the card companies' ability to withstand a larger judgement without evidence of their profitability, "the evidence strongly suggests that they could".

The proposed settlement, which would have covered more than 12 million merchants, aimed to lower and cap interchange fees—the charges retailers pay for processing card transactions. Under the terms, the typical 1.5 per cent to 3.5 per cent swipe fee would have been reduced by 0.04 percentage points for three years, with fees capped for five years.

However, Judge Brodie found these changes inadequate, stating they fell short of the "best possible" recovery for merchants. She argued that the settlement would have kept fees significantly above competitive levels and maintained the controversial "Honour All Cards" rule, which requires merchants to accept all cards from a network or none at all.

Both Visa and Mastercard expressed disappointment with the decision. Visa stated its belief that "direct resolution with merchants is the best way forward", while Mastercard emphasised that the settlement would have encouraged competition and provided certainty for millions of businesses.

The antitrust litigation, which began in 2005, may now proceed to trial unless a new settlement is reached. The case has garnered significant attention from the retail industry, with many merchants and trade groups, including the National Retail Federation, objecting to the proposed settlement terms.

As the legal battle continues, the outcome could have far-reaching implications for the payments industry and the costs borne by retailers and, ultimately, consumers.

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