Dive Brief:

• U.S. District Court Judge Margo Brodie issued a memorandum and order Tuesday, reiterating she’s not likely to approve a settlement of a class action that has pitted merchants against the giant U.S. card networks, Visa and Mastercard, for nearly two decades.
• The judge “is not likely to grant final approval” for the settlement, an entry in the docket for the U.S. District Court of the Eastern District of New York said. In keeping with that, she denied a motion for preliminary settlement approval.
• The judge granted one merchant's request to suggest to the Judicial Panel on Multidistrict Litigation that the case be shifted from New York to Illinois federal court.

Dive Insight:

For now, Brodie’s written decision is unavailable for public viewing, giving lawyers time to request redactions, according to the docket, which stipulated attorneys involved in the case should submit proposed redactions to her chamber by midday Friday.

Brodie first indicated about two weeks ago, on June 13, that she wasn’t inclined to approve the settlement, saying so in court during a hearing. The settlement, which was hammered out by lawyers for merchants and the card networks, purported to offer merchants nearly $30 billion in concessions. It would achieve the savings by reducing interchange fees that merchants must pay when consumers swipe their credit cards, and by capping those rates for five years, among other measures.

The merchant plaintiffs sued the card networks in 2005, arguing that antitrust infractions resulted in merchants overpaying interchange fees to the networks for years. Lawyers for the plaintiffs said they had worked on the settlement for eight years. The injunctive relief being sought by the merchants is related to the parties’ settlement for $5.6 billion in damages approved in 2019.

If the two sides can’t reach agreement on injunctive relief, the case could go to trial.

While the judge didn’t disclose the full memorandum detailing her opposition to the settlement, she gave what she called a “preview” of her thinking at the hearing earlier this month. 

A transcript of that hearing showed Brodie zeroing in on how the pact treats what are called “honor all cards” rules, which Visa and Mastercard each require merchants accepting their cards to abide by. Under each networks’ rule, any merchant that chooses to accept a card tied to the Visa network, or alternatively the Mastercard network, must accept all cards tied to that network, regardless of which bank issued the card.

Trade groups for retailers and merchants, including the National Retail Federation, National Grocers Association and the Merchant Payments Coalition, expressed support for Brodie rejecting the settlement. 

“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,” NRF Chief Administrative Officer Stephanie Martz said in a press release. “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.”

Similarly, the MPC called the settlement a “flawed” one, suggesting in a press release that it would allow the card networks to persist in overcharging merchants. “Visa and Mastercard wanted a settlement that would let them keep price-fixing swipe fees and blocking competition,” National Grocers Association Chief Government Relations Officer Christopher Jones said in the MPC release.

When asked for comment, Visa, the largest U.S. network by volume, and no. 2 Mastercard, referred to the statements they made earlier this month with regard to the judge's leaning against the settlement.

"We are disappointed with the court’s comments," Visa said in its prior statement. "We continue to believe that the proposed settlement agreement was the appropriate resolution resulting from lengthy and thoughtful discussions with the merchant class.”

The judge’s action also prompted commentary from two U.S. senators who have introduced legislation seeking to inject more competition into the card network industry. Sens. Dick Durbin (D-IL) and Roger Marshall (R-KS) issued a statement saying: “We’re pleased Judge Brodie rejected this settlement, which we felt only temporarily provided concessions negotiated by a few lawyers behind closed doors. And we are hopeful that Visa and Mastercard will now negotiate a settlement that truly benefits our merchants and small businesses.”

However, they went on to contend that the best solution is their bill, dubbed the Credit Card Competition Act, which seeks to ensure that a network other than Visa and Mastercard is available to merchants when they accept credit card payments from customers. The senators noted in the release that Visa and Mastercard are affiliated with 83% of general purpose cards in the U.S., according to the Federal Reserve.

With the legislative proposal caught in the crossfire between retail interests and banking interests on Capitol Hill, it has made little progress in Congress since it was initially introduced in 2022.