A US federal judge has dealt a significant blow to credit card giants Visa and Mastercard by rejecting a $30 billion antitrust settlement aimed at resolving longstanding disputes over so-called "swipe fees".

The decision, handed down by US District Judge Margo Brodie in Brooklyn on Tuesday, could potentially force the companies back to the negotiating table.

The proposed settlement, announced on 26 March, was intended to bring an end to litigation that began in 2005 concerning interchange fees—the charges merchants pay to accept Visa and Mastercard payments. These fees, typically ranging from 1.5 to 3.5 per cent of each transaction, amounted to approximately $72 billion in 2023 according to a report from Nilson.

Under the terms of the rejected agreement, Visa and Mastercard had pledged to reduce the average swipe fee by at least 0.04 percentage points for three years, with a commitment to maintain it at least 0.07 percentage points below the current average for five years. The settlement also included provisions to cap rates for five years and remove anti-steering clauses that prevent merchants from directing customers towards cheaper payment options.

However, the proposed settlement faced stiff opposition from many merchants and trade groups, including the influential National Retail Federation. Critics argued that the fee reductions were insufficient and that Visa and Mastercard would retain too much control over card transactions. Opponents also took issue with rules prohibiting merchants from explaining to customers why some cards are more expensive to process than others.

Judge Brodie's decision to deny preliminary approval of the settlement suggests that she is unlikely to grant final approval. The judge has given both parties until 28 June to propose redactions before she issues a written opinion detailing her reasoning.

The ruling could potentially pave the way for a trial, unless Visa and Mastercard can negotiate more favourable terms for merchants. Doug Kantor, general counsel of the National Association of Convenience Stores, welcomed the decision, stating that the settlement "didn't address the problem of Visa, Mastercard and banks forming a cartel to issue credit cards and set fees".

This latest development comes amidst growing scrutiny of credit card fees in the United States. Some US senators have been promoting legislation, known as the Credit Card Competition Act, which would allow merchants to use alternative payment networks to process Visa and Mastercard transactions.

Both Visa and Mastercard expressed disappointment with the outcome, while lawyers representing merchants who supported the settlement have yet to comment publicly.

The case, which has far-reaching implications for both retailers and consumers, underscores the ongoing tension between credit card companies and merchants over transaction fees. As the legal battle continues, all eyes will be on Visa and Mastercard to see how they respond to this significant setback in their efforts to resolve the long-running dispute.

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