Visa and Mastercard have reached a groundbreaking settlement in a class-action lawsuit that will result in reduced credit card processing fees for merchants in the U.S. This move is expected to save retailers approximately $30 billion over the next five years. As part of the settlement, both companies have agreed to cut credit card processing fees for U.S.-issued consumer credit cards by at least four basis points for the next three years and will cap the reduced rates for five years.
The reduced rates must be at least seven basis points below the current average and will be subject to review by an independent auditor. The settlement stems from a 2005 lawsuit alleging that Visa, Mastercard, and their member banks violated antitrust laws, leading to merchants paying excessive fees. Robert Eisler, an attorney for the plaintiffs, stated that the settlement aims to eliminate anti-competitive practices and provide immediate savings to all U.S. merchants, regardless of size. The proposed terms of the settlement are pending approval from the U.S. District Court for the Eastern District of New York.
One of the surprising facts revealed in this case is that Visa and Mastercard collectively control over 80% of the nation’s credit card network, with more than 576 million cards in circulation. This dominance has raised concerns among lawmakers, leading to the introduction of the Credit Card Competition Act of 2023, which aims to address the “duopoly” created by these two companies. The legislation was reintroduced last summer after the initial attempt in 2022 did not progress during the previous legislative session.
The settlement announced on Tuesday is the latest development in a long-standing legal battle between credit card issuers and retailers. In 2018, Visa and Mastercard agreed to pay between $5.54 billion and $6.24 billion in a separate settlement involving a class of 12 million merchants. This settlement was finalized at $5.54 billion in March 2023, with claims submissions beginning in December. Despite the settlement, neither Visa nor Mastercard admitted to any wrongdoing as part of the agreement.
Overall, the settlement reached by Visa and Mastercard is expected to have a significant impact on merchants across the U.S., providing them with substantial savings on credit card processing fees over the next five years. Retailers stand to benefit from reduced rates and increased competition in the credit card industry, potentially leading to a more level playing field for businesses of all sizes. The outcome of this settlement could have far-reaching implications for the financial industry and could pave the way for further scrutiny of credit card companies by regulators and lawmakers.
