Dive Brief:

• The proposed Visa-Mastercard settlement fell short with respect to a legal stipulation that plaintiffs in such class actions – this one pitting merchants against the card networks – be treated equitably relative to each other.
• The settlement, reached in March and nixed last week, didn’t treat large and small merchants “equitably” in terms of new surcharging rights offered in the settlement, or in terms of lowered interchange rates provisions over the next three years, Brodie determined.
• “The Court agrees with the objectors that the Settlement does not treat Class Members equitably relative to one another,” Judge Margo Brodie wrote in her June 25 ruling. “The Settlement provides the least benefit to the merchants with the most valuable claims.”

Dive Insight:

The long-running class action began in 2005 when merchants sued the card networks Visa and Mastercard in U.S. District Court for the Eastern District of New York over alleged antitrust violations with respect to setting the interchange rates that retailers, restaurateurs and other merchants must pay when they accept Visa or Mastercard payments from consumers.

Over the past 20 years, the case has weathered many twists and turns, through appellate proceedings and the delineation of separate classes for a case that now has some 12 million merchant class members, according to the latest ruling. The court designated a group of lawyers for some merchants to negotiate the settlement, but attorneys for some of the largest merchants, including the mega-retailer Walmart, objected, saying the settlement was inadequate.

The judge first indicated at a June 13 hearing that she wasn’t inclined to approve the proposed settlement put forward by lawyers for the merchant class action litigants and the big card networks Visa and Mastercard. Her opinion spelling out her reasoning for rejecting it was unsealed in the court docket last Friday. 

The settlement proposed to institute a five-year cap on interchange fees posted as of December 31, 2023, with Visa and Mastercard agreeing that the swipe fees would be “at least seven basis points below the current average rate” for that period as well. In addition, the pact proposed a roll-back of the posted swipe fee for “every merchant by at least four basis points for at least three years,” according to a March press release from the lawyers who negotiated the settlement.  

But Brodie found in her 88-page opinion on the settlement that the inequitable treatment of the class members was grounds for ditching the agreement. That was partly because large merchants often negotiate lower interchange rates through the networks, or through banks that act as acquirers in the transactions. As a result, the big merchants would benefit less, if at all, from the settlement’s lowered rates and rate caps.

”The largest merchants who pay the most in interchange fees are also the most likely to have negotiated individual rates with either their Acquirers or the Networks directly,” Brodie wrote. “Because these merchants do not pay posted rates, they are unlikely to receive any benefit from the ‘rate caps and rollbacks.”

Brodie also noted that surcharging rights won in the settlement were lacking, partly because larger national merchants might not be able to make use of them nationwide due to some states’ restrictions on such surcharging. In addition, a provision allowing merchants to band together in a buying group, and to make use of a new merchant education fund also would be less valuable for larger merchants, she noted.

“The Court finds that the benefits of the Settlement are likely to flow disproportionately and inequitably to small, local merchants,” the opinion said.

In her opinion, Brodie was also sympathetic to arguments from larger merchants that the settlement didn’t tackle a core antitrust allegation, namely that the card networks’ ‘honor all cards’ rule plays a key role in their maintaining an anticompetitive edge in the market.

Under the Visa and Mastercard “honor all cards” rule, any merchant who 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. In other words, when a merchant is presented with a Visa card, whether it’s issued by JPMorgan Chase or by Capital One, the merchant can’t discriminate among Visa cards by accepting those issued by one bank, but not another. The same goes for Mastercard. 

“Regardless of whether the objecting plaintiffs would successfully argue for the elimination of the Honor All Cards rule if allowed to proceed to trial, the fact that such relief has been continuously argued for, and would offer significantly more choice to all Class Members, suggests that the relief offered in the Settlement falls short of the ‘best possible’ recovery,” Brodie wrote, noting the legal requirement to angle toward that ideal outcome.

With a settlement scuttled, the parties are now headed for a trial, though a revised settlement is also a possibility. Lawyers for the litigants haven’t responded to requests for comment.