The Big Credit Card Settlement Now Appears to Be Headed for a Trial. Who Will Win?

With the judge in the massive credit card interchange litigation apparently insisting on a trial, a new and unsettling element of uncertainty now hangs over the nearly 20-year-old case, in which merchants allege anti-competitive behavior by the big credit card networks in setting interchange fees.

The latest development comes nearly three months after the networks and merchants came to terms on a landmark interchange settlement that calls for rate reductions by Mastercard Inc. and Visa Inc. that are estimated to save merchants nearly $30 billion in card-acceptance costs over a five-year period.

Margo K. Brodie, chief judge for the U.S. District Court for the Eastern District of New York, indicated Thursday she isn’t satisfied with the agreement and will soon issue a written decision on the matter. The latest twist in the case comes as merchant groups have also soured on the deal.  “Judge Brodie seems to believe the settlement doesn’t work. The next step is to go to trial,” says Doug Kantor, general counsel for the National Association of Convenience Stores. “That’s the right call and a good thing.”

Card-industry experts caution that the prospect of a trial before a jury could lead to lopsided results for either the merchants or the two big networks. “If, as seems likely, the dispute is put before a jury in Brooklyn, the outcome is potentially catastrophic for either party. Mastercard and Visa will have to make an aggressive affirmative case before twelve jurors for the enormous value the credit-card ecosystem provides and the critical role interchange fees play in balancing participation on both sides of the network,” notes payments consultant Eric Grover, in an email message.

One key casualty stemming from the collapse of the settlement agreement could be an often overlooked provision that permits merchants to encourage customers to use less expensive payment media at the point of sale. Such so-called tender steering has long been prohibited by network rules but could deliver significant savings for sellers, some experts estimate.

Richard Crone, principal at the payments advisory firm Crone Consulting, estimated late in March the settlement would save big merchants and digital-wallet providers hundreds of millions of dollars in acceptance fees, as the agreement provides for a three-year, 4-basis-point reduction in rates. But merchants could as much as triple their savings, he estimated, if they move 1% of their most costly payments types to lower-cost payment media, such as in-house credit offerings.

Other key provisions of the settlement included a requirement that each network ensure its average effective credit card interchange rate is at least seven basis points lower than the average effective credit card interchange rate for the 12-month period ending March 31, 2024. This limit was to be in effect for five years.

Now, the picture has suddenly clouded with the apparent move by Brodie to hear the case. “The judge was pretty clear she expects to reject the settlement,” Kantor says. Objections filed with the court, he says, have been “overwhelming” in “pointing out the settlement is not adequate in addressing anticompetitive issues.” Executives at Visa and Mastercard could not be immediately reached for comment on the apparent move to go to trial.

For his part, Grover argues the networks could come out of the trial with a win. “I think the credit-card networks would have a good chance of a clean and total victory at trial,” he notes. “However, the Russian-roulette metaphor applies. There’s a bullet in one of the revolver’s chambers. They could lose big. We just don’t know how many chambers there are.”