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Credit card companies agree to a $6.2B swipe-fee settlement

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Mastercard, Visa and a number of banks have agreed to compensate restaurants and other merchants by an additional $900 million to settle a long-standing class-action suit over swipe fees. 

The updated settlement, which is still subject to court approval, will raise the compensation due plaintiffs who accept the financial institutions’ credit cards to $6.2 billion. 

However, the deal does not change the rules and processes governing the relationship between the card companies and their merchant-partners. “The broken swipe fee system will not be fixed simply by Visa and MasterCard throwing some money to merchants,” Lyle Beckwith, SVP of government relations for NACS, a trade association of convenience stores and one of the original plaintiffs in the class action, said in communication with members. 

The association noted that some plaintiffs have already dropped out of the class, and others are refusing to accept the new deal. 

The settlement announced today is an update of a 2012 deal that called for reducing by 10 basis points the swipe fees that merchants were charged for allowing customers to pay with a credit card, for a period of eight months. The discount and related compensation for merchants was valued at $7.2 billion.

Many merchants dropped out of the plaintiffs’ class in protest of the deal, leaving open the possibility of pursuing legal action on their own. Their exits lowered the expense for Mastercard and Visa to $5.7 billion.

A federal appeals court decided in 2016 that the adjusted amount was too low and threw out the agreement. The U.S. Supreme Court declined to hear the case, forcing the credit card companies and merchant representatives to renegotiate. Those efforts resulted in the accord that was issued today. 

The deal calls for the defendant companies to collectively increase their concessions to merchants.   Mastercard said it agreed to pay $108 million of the additional $900 million.

If the settlement is approved, restaurants and other merchants that remain in the plaintiffs’ class will forego any fee-related monetary claims against the defendants, as well as any future claims for five years. 

The credit card companies and their merchant-partners have been fighting in court over swipe fees and other aspects of their relationship since 2005. Mastercard hailed today’s deal as an opportunity to end the ordeal.

“We are taking a significant step toward closing a chapter in a long-standing case,” Mastercard General Counsel Tim Murphy said in a statement. “We can put this behind us and focus on continuing to innovate with our merchant partners to deliver the experience and convenience that consumers expect.”

 

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