U.S. District Judge Margo Brodie of the U.S. District Court for the Eastern District of New York said in a memo that she was “unlikely” to approve the final settlement and denied a request for preliminary approval of the settlement. Brodie ordered the plaintiffs to discuss and respond to the ruling by Friday.
Visa and Mastercard will either have to renegotiate the deal with merchants or go to court.
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Brodie did not give a reason for her refusal, but had already signaled her position on June 13.
Visa and Mastercard expressed disappointment at the judge’s decision. The agreement presented a “fair resolution” to the 19-year dispute, Mastercard spokesman Will O’Connor said. Visa similarly called the settlement an “appropriate solution” that resulted from “long and thoughtful discussions” with merchants, company spokesman Fletcher Cook said.
Retailers typically pay between 1.5 and 3 percent in swipe fees for each customer transaction to credit card companies. The solution would require the average sliding fee to fall by at least 0.04 percentage points for three years and remain at least 0.07 percentage points below the current average for five years. The settlement also would have prevented credit card companies from raising swipe fees until 2030.
Businesses, in turn, would have been able to impose surcharges based on the Visa or Mastercard cards used by customers and direct them to cheaper payment methods.
The settlement stemmed from a 2005 antitrust class-action lawsuit against Visa, Mastercard and numerous US banks that alleged merchants paid excessive fees to accept credit and debit payments from card companies. Traders claimed the banks engaged in de facto price-fixing when they set those fees – and some opposed the settlement on the grounds that the deal would leave fees too high and provide only short-term relief for businesses.
Credit card companies counter that swipe fees cover the cost of processing and authorizing payments.
The settlement opened the door for credit card companies to either raise other fees for merchants to make up for lost revenue or wait until the repayment deadline expires to raise them again, said Stephanie Martz, chief administrative officer and general counsel for National Retail. Federation, a trade group for retailers.
“We didn’t think it accomplished anything,” Martz said. “Now it’s up to Visa and Mastercard. If they want to go back and really address the problems that we’ve identified in the last 20 years, we’re absolutely open to it. But if not, we will see them in court.”
The judge’s rejection of the settlement is an admission that it “didn’t come close” to resolving the cases between the card companies and merchants, said Doug Kantor, general counsel at the National Convenience Store Association, another retailer trade group.
“Visa and Mastercard organize all the banks that issue their cards into cards and set the prices for those cards in an all-or-nothing situation, and that has effects on the economy, on Main Street businesses and on consumers,” Kantor said. . “The judge acknowledged that this settlement does not address any of those issues.”