By Jonathan Stempel
NEW YORK (Reuters) – A federal judge said Visa (NYSE:) and Mastercard (NYSE:) are likely to withstand a “substantially larger” settlement with merchants who say they paid too much in swipe fees than the agreement of $30 billion she turned down this week.
U.S. District Judge Margo Brodie in Brooklyn made her ruling in an 88-page opinion released Friday, three days after she announced she had rejected the tentative settlement.
The agreement, which covers more than 12 million merchants, would have reduced and capped the swipe fees, also known as interchange fees, that they pay to complete Visa and Mastercard transactions.
But the judge called the estimated $6 billion in annual savings for merchants “paltry” compared to the estimated $100 billion in fees they paid to accept Visa and Mastercard by 2023.
“Without evidence of Visa and Mastercard’s profitability, the court cannot say with certainty that defendants can withstand a more severe verdict; however, the evidence strongly suggests that they can withstand a substantially more severe sentence,” Brodie wrote.
The antitrust case began in 2005 and could go to trial without a new settlement.
Visa said it was disappointed and still believes “a direct resolution with merchants is the best path forward.”
Mastercard also expressed disappointment, saying the settlement would have encouraged competition and given millions of businesses “substantial certainty and tremendous value in the way they manage their card acceptance operations.”
The agreement would have reduced the typical swipe fee from 1.5% to 3.5% by 0.04 percentage points over three years, capped fees for five years and given merchants more room to impose surcharges.
Brodie said the proposed changes fell short of the “best possible” recovery.
She said fees remained significantly higher than where they would be without the alleged antitrust violations, and that she was still “saddling” merchants with the “Honor All Cards” rule that requires them to accept all Visa and Mastercard cards, or no.
Many merchants objected to the settlement, as did several trade groups, including the National Retail Federation.
The case concerns In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, US District Court, Eastern District of New York, No. 05-md-01720.
