A judge in Brooklyn turned down the $30 billion deal between Visa and Mastercard and stores that thought they were paid too much for accepting cards. From what Judge Brodie said in an 88-page order that was made public, it sounds like Visa and Mastercard could probably take a much bigger payment than the one that was offered.
Three days before Brodie’s decision came out, an agreement that was turned down tried to ease the worries of more than 12 million retailers by lowering and limiting the interchange fees, which are also known as swipe fees, that they had to pay to process transactions.
Visa and Mastercard Can Afford Higher Settlement, Suggested by Federal Judge
In a letter and decision that was made public, U.S. District Court Judge said again that she probably will not agree to a settlement in the class action lawsuit that has been going on for almost twenty years between stores and the two biggest credit card networks in the U.S. In line with that, the judge turned down a request for preliminary deal clearance.
A trader asked the judge to suggest to the Judicial Panel on Multidistrict Litigation that the case be moved from a federal court in New York to a federal court in Illinois, and the judge agreed. When merchants sued the card networks in 2005, they said that breaches of trade laws were to blame for years of merchants paying too much in interchange fees to the networks. Lawyers for the claimants said they worked on the settlement for eight years.
Judge rejects $30B Visa, Mastercard ‘swipe fee’ settlement
Visa and Mastercard reached a $30 billion deal with customers in March. This will lower swipe fees for American stores over the next five years. The way credit card transactions are done might change if the bill is passed. This would affect both customers and businesses. The $30 billion deal was turned down by a judge, though.
The news said that Judge Margo Brodie of the Eastern District of New York did not think the deal would be approved in the end. Visa and Mastercard will now have to renegotiate on behalf of the users. Judge Brodie did not say more about why she turned down the settlement offer, though.
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Judge puts USD 30 Billion Visa, Mastercard settlement on hold
A federal judge turned down the $30 billion deal between Visa and Mastercard, the big payment processors, and the stores that say they paid too much in swipe fees. Visa and Mastercard reached a deal with a number of small businesses and stores in March. The deal would let small businesses discuss prices with payment processors together, just like big businesses already do. It would also lower and cap the fees that Visa and Mastercard charge.
Some people did not agree with the plan, though. The National Retail Federation, which is the biggest retail trade group in the U.S., said it was going to fight the settlement, saying that the relief was only temporary and that too much was still being charged for processing payments. People who worked with stores who were against the settlement thought that the five-year limit on swipe fees was not enough.
What is the case?
The lawsuit, which was put in 2005, said that Visa, Mastercard, and their member banks had broken antitrust laws by making retailers pay too much to accept their credit cards. The deal came about because of this case. MasterCard and Visa charge fees for every transaction that takes place on their networks. Costs depend on the type of business and the size of the deal, but are usually between 1% and 3% of the total amount.
During the long court case that 19 stores brought, Visa and Mastercard agreed to pay $6.2 billion in 2018. But there were still two parts of the case that had not been settled: the retailers’ refusal to take part in the settlement and the disagreement over the terms that Visa and Mastercard put on stores that accepted their cards.
Now What?
When people use Visa or Mastercard cards that come with rewards, they might have to pay more, even though they might not notice the lower swipe fees right away. Additionally, some cardholders may get discounts if stores and banks agree on a way for stores to market certain cards.
Congressmen from both parties are still introducing new laws to challenge Visa and Mastercard’s dominance in the credit card business, even though a lot has happened recently. The main point of these bills is to make this business more competitive and protect customers.
The deal could change the way money is transferred and how companies merge, like Discover and Capital One did. The fact that Visa and Mastercard stock did not go up much after the news shows that the settlement’s effects will likely have a big effect on the banking industry in the months to come.