Visa, Mastercard Swipe Fee Deal Fails to Stem More Litigation

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Visa Inc. and Mastercard Inc.’s $30 billion swipe fee settlement with merchants provides only temporary relief for US businesses and won’t stop additional litigation against the payment networks, critics say.

The companies this week announced an agreement to cap credit-card swipe fees and allow merchants to steer consumers to cheaper payment options in order to end multidistrict litigation dating back to 2005. Merchants are expected to save $30 billion in swipe fees, also known as interchange fees, over five years.

But others aren’t convinced the settlement does enough. Target Corp., Starbucks Corp., Foot Locker Inc. and Crate & Barrel are among the retailers that opted out of a previous $5.6 billion class action settlement with the card companies to pursue their own case. They expect to go to trial with claims accusing Visa and Mastercard of colluding on the fees after a federal judge denied the card companies’ bid to end the litigation. However, opting out of the March 26 proposal—which is focused on injunctive, rather than monetary relief—isn’t an option.

Some retailers slammed the details in the agreement, which only caps swipe fees for five years, during which time Visa and Mastercard can’t go above rates that existed at the end of 2023.

“We’re pushing forward with a trial,” said Chris Jones, chief government relations officer and counsel for the National Grocers Association, which is pursuing a trial along with Target and other retailers. “Our fear is that this settlement would be crammed down and imposed on everyone, including opt-out groups. We want more harsh relief and from what we have read, this doesn’t meet the mark.”

See also: Visa-Mastercard Deal Rattles Consumers’ Credit Card Rewards Math

‘Very Small and Very Temporary’

The proposed settlement is weak for merchants, given that it’s expected to save them $30 billion over five years, while US businesses paid more than $170 billion in swipe fees last year alone, said Doug Kantor, member of the executive committee of the Merchants Payments Coalition. The coalition is a Washington, D.C.,-based group of retailers advocating for competition in the payments market.

Visa and Mastercard will continue to set prices for swipe fees charged to merchants each time a customer makes a purchase, and there’s nothing standing in the way of the companies raising them again after five years, Kantor said.

“It’s very small and very temporary relief and then back to business as usual,” Kantor said. “The plaintiffs want a market that actually works and puts normal competitive pressure on fees.”

Kantor’s sentiments were echoed by several merchants, including Tom Charley, a co-owner of three Shop ‘n Save stores in western Pennsylvania.

“What happens after five years? They have 100 percent control of the market, and they can do whatever they want,” Charley said about Visa and Mastercard. “Their rates have gone up significantly over the last five years, and that’s going to continue. And with inflation, it’s even worse.”

Steve Shadowen of Hilliard Shadowen LLP, one of the lead attorneys for the class of merchant plaintiffs covered by the proposed settlement, disagreed. He said five years was plenty for market forces to take over.

If the settlement is approved, it would cover all US merchants who accepted Visa or Mastercard debit or credit cards in the US at any time during the period between Dec. 18, 2020, and when the court enters the final judgment. Retailers pursuing a trial for monetary damages against the card companies would also be covered by the settlement, and wouldn’t be able to opt out of the deal.

“We will have a much more competitive marketplace at the end of five years, and it will not be possible for these networks and banks to go backwards,” Shadowen said. “And if they were to try to, then they can be sued again.”

Proposed Settlement

The proposed settlement for injunctive relief comes a year after a federal appeals court upheld a landmark antitrust deal in which Visa and Mastercard agreed to pay $5.6 billion to millions of merchants but didn’t address concerns about business practices.

This week’s proposed settlement doesn’t change any of the problems with Visa and Mastercard’s business practices, including the so-called “honor all cards” rules, said Stephanie Martz, chief administrative officer and general counsel for the National Retail Federation. Those rules mean that if a merchant accepts one of the brands’ cards, it must accept all of the brands’ cards. The NRF represents retailers including Walmart, Target, Macy’s and Levi Strauss & Co. as well as small businesses.

Ideally, merchants would have more autonomy with respect to which cards they choose to honor, something the card companies would never agree to, Martz said.

“It’s too lucrative,” she said. “If they have to compete, they are going to start losing.”

Merchants also fretted about how much incentive they would have to steer customers to preferred cards with less costly fees—especially if bigger retailers continued to accept all cards, including those charging higher interchange fees like Chase Sapphire Reserve or Visa Infinite. The proposed settlement puts the onus on merchants to encourage customers to use other payment methods.

“If Walmart isn’t going to do it, do you think I’m going to do it?” said Charley, who said his stores’ main competitors are Walmart and Target. “I’m competing with big, big guys out there.”

Jones, of the National Grocers Association, agreed that grocers want to accommodate customers regardless of what card they have.

“Grocery is a volume business so our goal is largely to get customers in and out of the grocery store as quickly as possible,” he said.

The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, E.D.N.Y., No. 1:05-md-01720, 3/26/24.



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