New York (CNN) — A federal judge overseeing a $30 billion preliminary swipe-fees settlement between Mastercard, Visa and retailers formally rejected the deal Tuesday.
Mastercard and Visa, two of the world’s largest credit card networks, reached their proposed multi-billion antitrust settlement with US merchants in March. The settlement would lower swipe fees, or interchange fees, that a retailer must pay when a customer makes a purchase using their card.
The details of Tuesday’s ruling made by Judge Margo Brodie of the US District Court of the Eastern District of New York have not been made public. But a memo released by the court on Tuesday said that she was “not likely to grant final approval” to the preliminary settlement absent any changes.
Retailers typically are charged 2% of the total customer transaction in swipe fees — but they can be as much as 4% for some premium rewards cards, according to industry estimates. The proposed settlement would have lowered those fees by at least 0.04% percentage points for a minimum of three years.
What the preliminary settlement entailed
The proposed settlement, which hinged on final approval from the Eastern District of New York, resulted from a longstanding antitrust class-action lawsuit in 2005.
In the suit, merchants alleged that the card companies and the banks that issue cards with them colluded to charge businesses inflated swipe fees and prevented them from directing their customers to other, cheaper payment options.
Under the preliminary settlement, the card companies denied any wrongdoing and agreed to maintain the swipe fee rates that existed as of December 31, 2023, for a period of five years.
Visa and Mastercard also agreed to remove anti-competitive restrictions so that merchants could suggest other preferred card options to customers going forward.
Critics of the deal, including the Merchants Payments Coalition (MPC) — whose members include supermarkets, retail chains, restaurants, drug stores, convenience stores, gas stations and online merchants focused on payments system reform — blasted the preliminary settlement as being insufficient.
Christopher Jones, an executive committee member of the Merchants Payments Coalition, said it would have enabled the credit card companies to “keep price-fixing swipe fees and blocking competition.”
“Thankfully, the judge made the right call in recognizing what a bad deal this would have been for Main Street merchants and their customers,” Jones said in a statement on Tuesday.
The Retail Industry Leaders Association, a trade group representing a slew of large retailers including Target, CVS, Dollar General, similarly applauded Tuesday’s ruling. “Leading retailers are grateful that Judge Brodie saw through the façade of the proposed settlement and understood that it would not provide the meaningful change that is needed to correct the competitive imbalance in the interchange ecosystem,” RILA said in a statement.
Visa and Mastercard did not immediately respond to CNN’s requests for comment.
This is a developing story and will be updated.
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