Judge Rejects $30B Visa, Mastercard Swipe Fee Settlement

In March, Visa and Mastercard reached a $30 billion settlement with consumers designed to reduce swipe fees for U.S. merchants over the next five years.

The U.S. District Court for the Eastern District of New York had to approve the settlement, which is the result of a lawsuit that was started in 2005. If approved, it might change how credit card transactions are conducted, which would have an effect on both customers and businesses.

Under the terms of the settlement, swipe fees—which normally total 2% of a transaction, with some premium rewards cards charging as much as 4%, according to the National Retail Federation (NRF)—would be reduced. In particular, “for a minimum of three years, the settlement would lower those fees by at least 0.04 percentage point.”

Stephanie Martz, NRF’s chief administrative officer and general counsel, said, “The fact remains that these fees are an unfair business practice that harms merchants and consumers and benefits banks.”

Now, however, the $30 billion settlement has been rejected by a judge.

The Associated Press is reporting that Judge Margo Brodie of the Eastern District of New York said she was unlikely to grant final approval to the settlement.

Judge Brodie didn’t give additional information on why she would reject the settlement offer, but this means that Visa and Mastercard will go back to the negotiation table for consumers.

Although these new, lower swipe costs may not immediately benefit customers, using Visa or Mastercard cards with incentives may incur additional fees. On the other hand, if retailers reach agreements with banks to advertise particular cards, some cardholders might benefit from discounts.

Notwithstanding these recent events, lawmakers from both parties are still putting out new legislation to counter Visa and Mastercard’s hegemony, highlighting the need for increased competition and consumer safety in the credit card sector.

The settlement could have an impact on proposed mergers like the one between Discover and Capital One in addition to financial deals. The implications of this settlement are expected to have a significant impact on the financial industry in the months to come, as seen by the little increases in shares of Visa and Mastercard that occurred after the announcement.