Visa and Mastercard face potentially higher settlement in swipe fee dispute

In a major development for millions of merchants, a federal judge has indicated that Visa and Mastercard could be on the hook for a far larger settlement than the $30 billion accord she just rejected. U.S. District Judge Margo Brodie in Brooklyn explained her thinking Tuesday in an opinion that was released last Friday, three days after the judge rejected an initial preliminary settlement calling for payment by both major credit and debit card companies.

It had aimed to resolve allegations of more than 12 million retailers who claimed they had been overcharged for so-called "swipe fees," more formally known as interchange fees, paid to process Visa and Mastercard transactions.

"Without evidence of Visa’s and Mastercard's profitability, the court cannot say with certainty that defendants can withstand a greater judgement; however, the evidence strongly suggests that they could withstand a substantially greater judgement," Brodie wrote.

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The 2005 antitrust litigation can proceed to trial if a new settlement is not made. Visa criticised the decision and maintained that an agreement between them and the merchants directly serves the best interest. Even Mastercard responded, explaining that settling would serve the interest of competition, saving millions of businesses from substantive money.

This settlement would reduce the standard 1.5% swipe fee to 3.5 per cent by 0.04 percentage point for three years, cap fees for five years, and give merchants more leeway to charge customers surcharges. The judge said the settlement wasn't the "best possible" recovery. She said it kept fees far higher than they would be without the alleged antitrust violations and continued to burden merchants with the "Honor All Cards" rule, which requires them to accept all Visa and Mastercard cards if any are accepted.

Many merchants objected to the settlement, as did several trade groups including the National Retail Federation.

With the litigation lingering, the possibility remains for an even bigger settlement-one that could totally revolutionise the financial dynamics for both merchants and the credit card giants.