In a significant legal development, U.S. District Judge Margo Brodie of Brooklyn delivered an 88-page opinion casting doubt on the adequacy of a proposed $30 billion settlement between Visa, Mastercard, and merchants over swipe fees, also known as interchange fees. This settlement, aimed at resolving antitrust litigation dating back to 2005, sought to lower and cap the fees that merchants pay for handling Visa and Mastercard transactions, potentially offering annual savings of $6 billion for over 12 million merchants.
Judge Brodie’s rejection of the settlement highlighted several critical points. She criticized the proposed $6 billion annual savings as “paltry” compared to the estimated $100 billion in fees merchants paid in 2023 alone. Expressing skepticism, she noted that Visa and Mastercard likely have the financial capacity to withstand a significantly larger settlement, despite the lack of specific evidence on their profitability presented in court.
The antitrust litigation revolves around allegations that Visa and Mastercard engaged in anti-competitive practices by setting and maintaining high swipe fees, thereby limiting competition and inflating costs for merchants. The proposed settlement aimed to introduce modest fee reductions over a limited period, cap fees for five years, and allow merchants more flexibility in imposing surcharges. However, Judge Brodie deemed these concessions insufficient, criticizing the settlement for failing to achieve the “best possible” recovery for affected merchants.
Furthermore, the judge pointed out that the settlement did not adequately address the underlying issue of alleged antitrust violations, as it still required merchants to comply with the “Honor All Cards” rule. This rule mandates that merchants accept all Visa and Mastercard cards, which some argued perpetuates the market dominance of these payment networks.
Visa and Mastercard expressed disappointment at the judge’s decision, highlighting their belief that a direct resolution with merchants would be the most effective path forward. They argued that the proposed settlement would have fostered competition and provided businesses with certainty in managing their card acceptance costs.
The rejection of this settlement now raises the possibility that the long-standing litigation could proceed to trial if a revised settlement agreement cannot be reached. This case underscores the complexities and significant financial stakes involved in antitrust disputes within the financial services sector, impacting millions of businesses reliant on payment card transactions.
Ultimately, Judge Brodie’s decision represents a pivotal moment in this legal saga, emphasizing the judiciary’s scrutiny over proposed settlements and the importance of achieving meaningful relief for affected parties in antitrust cases of such magnitude.