US judge rejects credit card swipe fee settlement, NRF hails decision

US district Judge Margo Brodie has rejected the proposed settlement of a class-action antitrust lawsuit concerning ‘swipe’ fees charged to merchants for processing Visa and Mastercard credit card transactions. The National Retail Federation (NRF) has welcomed the decision.

The district judge issued an order stating, “The court finds that it is not likely to grant final approval to the settlement and accordingly denies plaintiff’s motion for preliminary settlement approval.” This order follows remarks made by Judge Brodie during a June 13 hearing, where she expressed doubts about approving the settlement, referencing concerns raised by NRF and other merchant groups regarding the settlement's adequacy in providing relief.

In April, attorneys representing NRF wrote to Judge Brodie, arguing that the proposed settlement would fail to end Visa and Mastercard’s practice of centrally setting swipe fees charged by all banks issuing their cards. They also criticised the settlement for not reversing the controversial ‘honour all cards’ rule, which mandates merchants to accept all cards from each network regardless of the associated fees, NRF said in a press release.

“This settlement was never agreed to by the retail industry as a whole and would have done nothing to end anticompetitive practices and fix our nation’s broken payments market,” said NRF chief administrative officer and general counsel Stephanie Martz. “The proposed reduction in swipe fees was tiny and temporary and ignored the underlying issue of how these fees are centrally set rather than allowing banks to compete to offer the best rates. We’re glad the judge has seen this backroom deal for what it is so we can move forward to real relief from these ever-increasing fees that drive up costs for small businesses and prices for American families.”

Announced in March, the proposed settlement aimed to resolve a 19-year-old lawsuit by reducing rates for each swipe fee category by four basis points for three years and average rates by seven basis points for five years. However, with credit card swipe fees averaging 2.26 per cent of transactions (226 basis points), NRF dismissed the proposed reductions as ‘a drop in the bucket.’

Although the rate reduction would have saved merchants an average of $6 billion annually, this is minimal compared to the $100 billion in Visa and Mastercard credit card swipe fees accumulated last year. Moreover, the agreement only covered interchange fees that benefit card-issuing banks, leaving Visa and Mastercard free to raise their own network fees, potentially nullifying any savings.

The NRF’s letter also described other aspects of the settlement as ‘impracticable or meaningless,’ pointing out a provision that would permit merchants to surcharge customers using premium cards with higher-than-average swipe fees. The temporary relief provided by the agreement was overshadowed by a ‘virtually limitless’ ban on future merchant litigation over swipe fees and lacked an opt-out option for dissenting merchants.

NRF attributed the settlement’s shortcomings to the actions of attorneys representing a small group of named plaintiffs—five small businesses claiming to represent the entire retail industry—who had ‘effectively frozen us out’ despite NRF’s repeated offers to assist.

Given the settlement’s failure to significantly impact swipe fees, NRF insists that legislative action is necessary. The federation continues to advocate for the Credit Card Competition Act, a bipartisan bill that would require large banks to enable an alternative processing network on Visa and Mastercard credit cards. This measure is expected to foster competition over fees, security, and service.

Fibre2Fashion News Desk (DP)