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Federal Judge Rejects $30 Billion Visa and Mastercard Antitrust Settlement Over Swipe Fees


visa and mastercard cards


Rejection of Settlement Over Swipe Fees 


A federal judge (Margo Brodie) has dismissed a proposed $30 billion antitrust settlement involving Visa and Mastercard, which sought to address the swipe fees merchants pay when accepting credit and debit card payments. U.S. District Judge Margo Brodie from Brooklyn ruled against the preliminary approval of the settlement, as requested by a group of merchants, primarily small businesses. 


The rejected settlement, initially announced on March 26, was intended to resolve a longstanding legal battle that began in 2005. This litigation focused on interchange fees, also known as swipe fees, which merchants pay to accept Visa and Mastercard payments. These fees, typically ranging from 1.5% to 3.5% of each transaction, generated approximately $72 billion in 2023, according to the Nilson Report. The fees benefit banks and other card issuers, which often funnel the revenue into rewards programs to encourage consumer spending. 


Under the proposed settlement, Visa and Mastercard had agreed to reduce the average swipe fee by at least 0.04 percentage points for three years and maintain fees at least 0.07 percentage points below the current average for five years. Additionally, the settlement would have capped swipe fees for five years and allowed merchants more flexibility to steer customers towards cheaper payment options and impose surcharges.


Merchant Opposition & Legal Challenges 


However, many merchants and trade groups, including the National Retail Federation, opposed the settlement. They argued that the relief offered was insufficient, temporary, and left Visa and Mastercard with too much control over card transactions. Critics contended that the fees result in higher prices for consumers, who may pay less when using cash. They also objected to rules that prevent merchants from informing customers about the cost differences between various cards or steering them to less expensive options. 


The judge's decision to reject the settlement may lead to further negotiations or a trial. Judge Brodie had signaled her inclination to reject the settlement during a hearing on June 13. This ruling does not impact an earlier $5.6 billion class-action settlement among Visa, Mastercard, and about 12 million merchants, which was upheld by a federal appeals court in Manhattan in March 2023, seven years after a $7.25 billion settlement was thrown out for short-changing some retailers. 


The case, titled "In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation," highlights the ongoing conflict over interchange fees and the control Visa and Mastercard exert over the payment processing market. Both companies expressed disappointment with the judge's decision. The settlement was seen as beneficial for Visa and Mastercard due to the minor fee reductions and the temporary nature of the caps.

Nonetheless, the next steps might involve revising the settlement terms or proceeding to trial. 


Long Term Impact & Stock Price Dip 


The stock price of Visa and MasterCard fell 5.42% and 4.57% respectively over the past 5 days after the news. For Visa and Mastercard, the long-term impact of this ruling may be minimal. Although the companies set the interchange fees, the banks collect them. Any future reductions in fees would likely affect the issuing banks more significantly than Visa and Mastercard. Moreover, the companies' substantial scale and flexible expense management models should help mitigate any revenue impacts. In addition, the global shift away from cash to electronic payments, particularly in emerging markets, continues to benefit both companies. 


The valuation of Visa and Mastercard remains attractive, with Visa trading at a forward price-to-earnings ratio of 27 and Mastercard at 32, which are on the lower end of their historical averages. Both companies are considered strong growth stocks with reasonable valuations. Investors might view any dips resulting from settlement news as an opportunity to acquire shares. 


Graph of visa and mastercard stock

The judge's decision has underscored the complexities of the swipe fee issue, which has been a point of contention for nearly two decades. Lawmakers, including some U.S. senators, have also introduced legislation, such as the Credit Card Competition Act, to allow merchants to use alternative payment networks for processing Visa and Mastercard transactions. This ruling signifies another chapter in the ongoing battle over interchange fees and the practices of major credit card companies.



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