United States - Class Actions (2024)

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The series of antitrust class action lawsuits first brought byU.S. merchants against Visa and Mastercard in 2006 continued itswinding path toward closure as the parties announced in March 2024that they had reached a proposed class settlement agreement worth upto $30 billion (the "2024Settlement").¹>

While the 2024 Settlement does not provide any direct monetaryrelief to class members, Visa and Mastercard each undertake tomodify their respective network rules to loosen existingrestrictions on merchant steering and surcharging practices, aswell as their ability to organize buying groups to negotiatemerchant terms. The 2024 Settlement also reduces averageinterchange on most domestic (i.e.,U.S. card and merchant)credit card transactions by 4-7 basis points. These changes are allsubject to court approval of the settlement and will generally beeffective for five years from implementation (with some exceptionsnoted below).

Participants should, however, exercise caution before making anymaterial financial, operational, or strategic decisions based onthe terms of the 2024 Settlement. As further discussed below, the2024 Settlement remains subject to final approval by the districtcourt, and a decision to approve or reject is likely to beappealed. The fate of the prior settlement attempted with respectto this merchant class in 2012 may call certain aspects of the 2024Settlement into question. It is therefore at least questionablewhether the 2024 Settlement will be approved and upheld in itscurrent form.

Key Terms of the 2024 Settlement

Changes to surcharge rules

While the 2024 Settlement retains Visa and Mastercard'sexisting requirements for permissible surcharging, severalconditions have been relaxed in the merchants' favor. Merchantsmay still assess either a brand-level or product-level surcharge(but not both), and the maximum surcharge cap remains at3%.²> However, merchants now have the option tosurcharge only Visa and/or Mastercard credit transactions and not(for instance) Discover transactions. If surcharges are not appliedequally across Visa/Mastercard and competing card brands, thesurcharge is capped at 1%.³> If the surcharge isapplied equally across all card brands accepted by the merchant,the cap is 3%.⁴> Existing notice and disclosurerequirements, as well as the general prohibition on surchargingdebit cards, remain in place.⁵>

Reduction in interchange on domestic credittransactions

Visa and Mastercard will each reduce their average interchangerate for applicable domestic credit transactions by at least sevenbasis points from the average across both networks' applicabledomestic credit transactions over the 12-month period ending March31, 2024.⁶> An applicable domestic credit transactionis one where a U.S.-issued credit card is acquired at a U.S.merchant location.⁷> For a period of three years,Visa and Mastercard will each also reduce all posted interchangerates for applicable domestic credit transactions by a minimum offour basis points.⁸>

Changes to no-discrimination rules

Visa and Mastercard are required to modify their "nodiscounting" and "non-discrimination" rules topermit discounts at the issuer level,⁹> creatingopportunities for new and deeper economic partnerships betweenmerchants and issuing banks. At present, merchant partnerships withissuing banks are mainly comprised of co-branded card partnershipsand participation in earning and redeeming card rewards – thechange will in theory allow merchants to select preferred bankpartners and receive rebates, financial services, and otherincentives from such banks in return for discounting transactionsat the point of sale made using preferred bank cards.

Changes to "honor all wallets"rules

Merchants will no longer need to accept any wallet that providesaccess to a Visa/Mastercard card under the "honor allcards" rule. The revised rule will allow merchants to declinedigital wallets (regardless of the card brands within that digitalwallet) at brick-and-mortar locations and enable some digitalwallets for online transactions, so long as they accept Visa orMastercard-owned or operated wallets where the acceptancecharacteristics are the same as they would be for a transactionwhere the applicable card is tendered directly to themerchant.¹⁰>

Buying groups

Merchants will be allowed to form buying groups to negotiatecollectively any terms that affect them with Visa andMastercard.¹¹>

Questions Surrounding the 2012 Settlement

In 2016, the 2nd Circuit vacated the district court'scertification of two merchant classes and overturned its approvalof a settlement agreement that the parties entered intoin 2012 (the "2012 Settlement").¹²>While the 2nd Circuit's decision primarily rested on theconflict of interest inherent in the same counsel representing boththe class of merchants that had accepted Visa and Mastercardtransactions from January 2004 through November 2012 (the"Legacy Merchants") and the class of merchants that wouldaccept Visa and Mastercard payments going forward ("CurrentMerchants"), the 2nd Circuit expressed a high degree ofskepticism on the value of the 2012 Settlement terms to CurrentMerchants:

No one disputes that the most valuable relief the SettlementAgreement secures for the (b)(2) class is the ability to surchargeat the point of sale. To the extent that the injunctive relief hasany meaningful value, it comes from surcharging, not from thebuying-group provision, or the all-outlets provision, or thelocking-in of the Durbin Amendment and DOJ consent decree. For thisreason, it is imperative that the (b)(2) class in fact benefit fromthe right to surcharge. But that relief is less valuable for anymerchant that operates in New York, California, or Texas (amongother states that ban surcharging), or accepts American Express(whose network rules prohibit surcharging and include amost-favored nation clause). Merchants in New York and merchantsthat accept American Express can get no advantage from theprincipal relief their counsel bargained forthem.¹³>

The 2024 Settlement applies to a single class of merchants (theLegacy Merchants having settled their claims in 2019), andtherefore the conflicts issues that plagued the 2012 Settlement areless relevant in this case. Nonetheless, while the 2024 Settlementalso introduces additional merchant-favorable terms, thecourt's objections to the analogous terms in the 2012Settlement still hold true to a great extent. Merchants in statesthat prohibit surcharging will still receive no benefit from therelaxation of the surcharging rules. Even in states wheresurcharging is permitted, the amount of the surcharge iseffectively capped at 1% for merchants to the extent that anycompeting network does not permit surcharging, as uniformsurcharging across brands is a condition to applying the higher 3%cap allowed under the 2024 Settlement. On the other hand, the 4-7basis point reduction in domestic interchange is a significantimprovement over the 2012 Settlement.

Given the 2nd Circuit's dismissiveness over the value of theall-outlets and buying group concessions, the inability of classmembers to opt out of the 2024 Settlement and the stated intentionof many large retailers to dispute its terms, it is at leastquestionable whether the 2024 Settlement will be approved andupheld in its current form.

Footnotes

1. Class Settlement Agreement of the Rule 23(b)(2) ClassPlaintiffs and the Defendants, In re Payment Card InterchangeFee and Merchant Discount Antitrust Litigation, No.05-md-01720 (E.D.N.Y), March 25. 2024.

2. 2024 Settlement § 28(a) and (b), and §60.

3. Id.

4. Id.

5.2024 Settlement § 28(c) and 60(c).

6. 2024 Settlement § 33 and 65.

7. 2024 Settlement § 1(b)

8. 2024 Settlement § 34 and 66.

9. 2024 Settlement § 19 and 51.

10. 2024 Settlement § 24 and 56.

11. 2024 Settlement § 29 and 61.

12. In re Payment Card Interchange Fee and MerchantDiscount Antitrust Litigation, 827 F.3d 223 (2nd Cir.2016).

13. Id. at 238.

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