Visa Inc. and Mastercard Inc. are facing a potential setback as a federal judge in Brooklyn indicated she is likely to reject their $30 billion settlement with retailers.
The deal, aimed at capping credit-card swipe fees, has been a focal point of contention between the card giants and merchants for years.
Judge Margo Brodie of the U.S. District Court for the Eastern District of New York expressed skepticism about the settlement during a hearing on Thursday.
According to court records, Judge Brodie suggested she might not approve the agreement, stating she would issue a written decision in the coming days.
Retailers have long campaigned to reduce their share of the costs associated with accepting card payments, known as interchange fees.
These fees, which are partially passed on to banks that issue the cards, including major institutions like JPMorgan Chase & Co. and Citigroup Inc., have been a burden for many merchants.
Announced in March and pending court approval, the settlement was designed to allow merchants to charge consumers extra for transactions involving Visa or Mastercard credit cards.
The agreement also aimed to introduce pricing tactics to steer consumers towards lower-cost cards.
“The court’s comments strongly suggest that she won’t accept the settlement,” noted Justin Teresi, an analyst with Bloomberg Intelligence. “While Judge Brodie doesn’t seem convinced that larger retailers should be allowed to opt out from the settlement, provisions like changes to digital wallet acceptance rules and some state bans on surcharges likely present real adequacy issues.”
Both Visa and Mastercard expressed disappointment over the developments. A Mastercard representative stated, “We believe the settlement presented a fair resolution of this long-standing dispute, most notably by giving business owners more flexibility in how they manage their card acceptance activities. We will pursue our options to ensure a proper resolution of this matter.”
Visa’s spokesperson echoed this sentiment, emphasizing that “continued engagement between industry and the merchants is the best way forward.”
Swipe fees have become a substantial financial issue for retailers, totaling more than $160 billion last year, according to the Merchants Payments Coalition. Reactions to the settlement were mixed when it was announced, with some retail coalitions pledging a thorough review and others quickly opposing it.
The Retail Industry Leaders Association, representing large merchants such as Target Corp. and Home Depot Inc., described the settlement as a “mere drop in the bucket” and urged careful review to assess if it adequately addresses the harm inflicted on retailers.
Doug Kantor, general counsel for the National Association of Convenience Stores, praised the judge’s remarks, stating, “We’re gratified to see that the court recognized how bad this settlement was.”