Why the Visa-Mastercard Settlement May Fall Short

Why the Visa-Mastercard Settlement May Fall Short

The longstanding 'honor all cards' rule upheld by Visa and Mastercard seems to be a significant barrier to Judge Margo Brodie approving a proposed settlement in a two-decade-old case brought by merchants. This rule, which mandates that merchants accepting a Visa or Mastercard must accept all cards from that network regardless of the issuing bank, remains a contentious issue.

Earlier this month, Judge Brodie expressed hesitation over approving a landmark settlement in the ongoing litigation initiated in 2005 by a group of merchants against Visa and Mastercard. While she hasn't yet released her written opinion, she provided strong hints during a recent hearing about her concerns regarding the settlement.

During a June 13th hearing in Brooklyn's U.S. District Court for the Eastern District of New York, Judge Brodie previewed her opinion, emphasizing that she was considering the matter seriously, as revealed in the courtroom transcript. The primary issue at hand is the injunctive relief in the antitrust class action, which proponents claim would provide around $30 billion in benefits for merchants. This settlement is distinct from a previous 2019 agreement that allocated $5.6 billion to the plaintiffs.

Judge Brodie's scrutiny focused on the 'honor all cards' rule, a policy that compels merchants who accept any card from Visa or Mastercard to accept all cards from that network, regardless of the issuing bank. This rule prevents merchants from declining cards based on the interchange rates or terms set by different banks, which has long been a point of contention among retailers.

The judge noted that the rule's persistence was a major sticking point between merchants in favor of the settlement and those opposed. Notably, larger merchants like Walmart argue that without eliminating this rule, the settlement offers little real benefit. "If you’re not eliminating the Honor All Cards rule, then we are not really getting anything from this settlement," Brodie remarked, according to the transcript.

On the other side, attorney Steve Shadowen, representing the merchants who negotiated the settlement, acknowledged that removing the rule would be ideal. However, he indicated that such a concession was unlikely from Visa and Mastercard. Shadowen suggested that demanding the removal of the 'honor all cards' rule would be akin to asking for the breakup of the networks—a proposal the defendants would not entertain.

Shadowen attempted to highlight other benefits of the deal, such as enhanced surcharging rights, which would allow merchants to charge consumers extra fees for using Visa and Mastercard. However, Judge Brodie appeared unconvinced, noting that surcharging is already permitted in some regions and questioning the overall relief it would provide. "It doesn’t appear to really offer that much relief," she stated.

In conclusion, Judge Brodie expressed her dissatisfaction with the proposed settlement, stating, "I don’t know what an adequate settlement would be, but I do know that I’m troubled by this one." She promised a detailed opinion explaining her reasoning, which suggests that her stance is unlikely to change.

Neither Shadowen nor Jeff Shinder, an attorney who has opposed the settlement on behalf of some merchants, commented on the judge’s remarks. With the judge's concerns clearly outlined, lawyers on both sides are likely working to devise a more acceptable resolution. This might mean revisiting the 'honor all cards' rule if they wish to avoid a trial.

As the legal teams scramble to address Judge Brodie's concerns, the fate of the Visa-Mastercard settlement remains uncertain. The outcome will significantly impact the payments industry and the merchants who have long contended with interchange fees and rigid network rules.

‍