Retailers win class-action settlement with Visa, Mastercard over swipe fees

U.S. retailers and merchants reached a settlement over swipe fees with Visa and Mastercard that is expected to reduce swipe fees over the next five years by $29.79 billion.

Through the agreement, which merchants say is one of the largest in U.S. antitrust history, Visa and Mastercard will lower published credit-card interchange fees by four basis points in the U.S. for at least three years. The companies also won’t raise interchange fees for five years above the rates that were in place at the end of 2023.

“This settlement is the culmination of eight years of hard-fought litigation and detailed, painstaking negotiations. It provides comprehensive market-based solutions to too-high swipe fees while providing immediate fee relief to merchants as they make these new competitive tools work for them,” said Steve Shadowen, co-lead counsel for the retailers.

The settlement stems from a 2005 lawsuit that alleged that merchants paid excessive fees to accept Visa and Mastercard credit cards and that Visa and Mastercard and their member banks acted in violation of antitrust laws. This injunctive relief follows the $5.54 billion financial settlement for all U.S. merchant class members which was finalized and approved by the U.S. Second Circuit Court of Appeals in March 2023.

The National Retail Federation stopped short of applauding the actual settlement. NRF explained that swipe fees have grown from about $20 billion a year in 2001 to $172 billion in 2023. The trade group also said as swipe fees have increased with higher prices they have therefore had a multiplier effect on inflation.

“We are still reviewing the proposed settlement, but we have some very real concerns. The reduction of just a few basis points is within the range that swipe fees have fluctuated over the years and amounts to pennies on the dollar. The fact remains that these fees are an unfair business practice that harms merchants and consumers and benefits banks. This settlement in no way influences our commitment to move forward with passing the Credit Card Competition Act,” said Stephanie Martz, NRF chief administrative officer and general counsel.

In addition to rollbacks and caps, a merchant education program as part of the settlement will facilitate merchant understanding of the rules changes and the benefits that can be achieved, noted Linda Nussbaum, co-lead counsel for the plaintiffs. The settlement applies the following three separate reductions to swipe fees:
• Visa and Mastercard will roll back the posted swipe fee of every merchant by at least four basis points (0.04%)  for at least three years;
• For five years, Visa and Mastercard will not raise the swipe fees of any merchant above the posted rates that existed as of December 31, 2023; and
• For five years, the average effective systemwide swipe fee for Visa and Mastercard must be at least seven basis points (0.07%) below the current average rate. An independent auditor will verify the calculations.

The settlement allows merchants to adjust prices based on the costs associated with accepting different credit cards, promoting efficient price signaling and enhancing transparency for consumers. Visa and Mastercard must negotiate swipe fees in good faith with merchant buying groups, and the agreement provides a streamlined process for resolving disputes, according to the settlement terms.

The card issuers allocated $15 million for a merchant education program to advise and inform merchants on the settlement and effectively utilize the rule changes.

“The Settlement Agreement opens competitive doors that have been closed for decades while providing rate relief to every merchant that accepts Visa or Mastercard credit cards,” said Nobel laureate economist Dr. Joseph Stiglitz.