Technology/Services

Judge’s Statement Supports Merchants in Swipe Fee Case

Dismisses card companies’ argument that the merchants lacked standing as direct purchasers of card services
convenience store visa mastercard swipe fees
Photograph: Shutterstock

Visa Inc. and Mastercard Inc. have lost a bid to stop litigation brought by merchants accusing the credit card companies of colluding on interchange or “swipe” fees, according to a Bloomberg Law report.

Judge Margo Brodie of the U.S. District Court for the Eastern District of New York denied the card companies’ motion for summary judgment in an opinion unsealed late last week, dismissing the card companies’ argument that the merchants lacked standing as direct purchasers of card services under Supreme Court precedent.

“Evidence is sufficient to establish at least a dispute of material fact as to whether merchants are direct purchasers of card-acceptance services,” Brodie said, according to court documents.

The Merchants Payments Coalition (MPC) welcomed Judge Brodie’s comments indicating that she is likely to reject a proposed class-action settlement over Visa and Mastercard credit card swipe fees.

“The judge made a strong statement in support of justice for merchants and consumers,” said Christopher Jones, MPC executive committee member and National Grocers Association Senior Vice President of Government Relations and Counsel. “We appreciate that there was recognition of the fatal flaws that would have made the settlement a bad deal for Main Street rather than a correction of credit card industry violations of the antitrust laws. It’s past time for Congress to pass the Credit Card Competition Act to fix this broken market.”

Opposition from merchants voiced at a June 13 hearing on the proposed class-action settlement shows the need for Congress to pass the Credit Card Competition Act, the MPC said.

“This proposed settlement does nothing to address the problem of how Visa and Mastercard centrally price fix swipe fees,” said  Jones. “Instead, the settlement locks in cartel pricing. Every major merchant group has come out against this settlement, and everyone should see this proposal for what it is—a sham that will make the situation worse. We need competition to fix this broken market and that means passing the Credit Card Competition Act.”

Jones’ remarks came as the U.S. District Court for the Eastern District of New York held the hearing on preliminary approval of a proposed settlement in the class-action litigation announced in March. Multiple merchant trade associations voiced opposition to the settlement ahead of the hearing, saying it would not provide sufficient relief to merchants or their customers.

Under the proposed agreement, Visa and Mastercard would lower credit card swipe fees—which averaged 2.26% of the transaction amount in 2023—by at least four basis points for at least three years. But the settlement specifically allows Visa and Mastercard to increase the network fees they charge as much as they want at any time, wiping out any reduction in swipe fees.

Credit and debit card swipe fees have more than doubled over the past decade and soared to a record $172.05 billion in 2023, up from $160.7 billion in 2022, according to MPC, citing the Nilson Report. They are most merchants’ highest operating cost after labor and are too much to absorb, driving up prices paid by the average family by more than $1,000 a year, said MPC.

Visa and Mastercard credit card swipe fees alone totaled $100.77 billion in 2023, rising from $93.2 billion the year before and topping the $100 billion mark for the first time.

Visa and Mastercard, which control 80% of the market, each centrally set the swipe fees charged by banks that issue cards under their brands, and also block transactions from being processed over other networks that could do the job with lower fees and better security. The CCCA would require banks with at least $100 billion in assets to enable cards they issue to be processed over at least two unaffiliated networks—Visa or Mastercard and a competitor such as NYCE, Star, Shazam or Discover.

Banks would choose which networks to enable but merchants would then decide which to use, resulting in competition over fees, security and service that is expected to save merchants and consumers more than $16 billion a year, said MPC. Rewards would not be affected, security would be improved, consumers would still use the same cards and community banks and all but one credit union would be exempt, it said.

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