U.S. District Judge Margo Brodie in Brooklyn said she was not likely to grant final approval to the settlement, and therefore denied the request by a group of merchants, primarily small businesses, for preliminary approval.

Visa and Mastercard fee settlement rejected

Many merchants and trade groups including the National Retail Federation opposed the accord, saying card fees would remain too high, while Visa and Mastercard would retain too much control over card transactions.

The decision to block the deal could force Visa and Mastercard to negotiate a settlement more favorable to merchants, or go to trial.

Brodie will issue a written opinion explaining her reasoning for rejecting the settlement after giving merchants and the card networks until June 28 to propose redactions.

Visa and Mastercard on settlement rejection

Visa and Mastercard said they were disappointed with the outcome. Lawyers for merchants that wanted to settle did not immediately respond to requests for comment.

The Visa and Mastercard settlement announced on March 26 was intended to resolve most litigation that began in 2005 over so-called swipe fees, also known as interchange fees. This is what merchants pay to accept Visa and Mastercard, and which the card networks set.

What Visa and Mastercard settlement entitled?

Those fees, typically 1.5% to 3.5% of each transaction, totaled about $72 billion in 2023 according to the Nilson Report. They generate profits for bank and other card issuers, which funnel many fees into rewards programs that encourage consumers to spend more.

The settlement called for the average swipe fee to fall at least 0.04 percentage point for three years, and stay at least 0.07 percentage point below the current average for five years.

Visa and Mastercard also agreed to cap rates for five years and remove anti-steering provisions that prevent merchants from steering customers to cheaper cards. While merchants would have gotten more discretion to offer discounts or impose surcharges.

Merchants on credit card rules

Many merchants objected to rules forbidding them from telling customers why some cards cost more than others, as well as from steering customers to cheaper cards.

Some critics also said the fees lead to higher prices for consumers, who are now sometimes charged less by paying in cash.

Trade groups said the settlement would have given merchants only small and temporary relief, and made it difficult for them to mount future legal challenges.

“It didn’t address the problem of Visa, Mastercard and banks forming a cartel to issue credit cards and set fees, such that merchants have to accept all cards or none,” Doug Kantor, general counsel of the National Association of Convenience Stores, said in an interview.

“The next step, presumably, is a trial,” he added.

Brodie had signaled at a June 13 hearing that she would likely reject the settlement.

Credit Card Competition Act

Some U.S. senators have promoted legislation, the Credit Card Competition Act, to let merchants use other payment networks to process Visa and Mastercard transactions.

The judge’s decision does not affect an earlier $5.6 billion class action swipe fee settlement among Visa, Mastercard and about 12 million merchants.

A federal appeals court in Manhattan upheld that accord in March 2023, seven years after throwing out a $7.25 billion settlement that short-changed some retailers.

The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, U.S. District Court, Eastern District of New York, No 05-md-01720.

Future of the Mastercard and Visa settlement

The future of this could lead to extended legal battles or the need for a renegotiated settlement. This would continue the lengthy litigation that has already spanned nearly two decades. The decision will set a precedent for how similar cases might be handled in the future. This will potentially shape the financial landscape regarding transaction fees and merchant rights.

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