Visa Inc. (NYSE: V) and Mastercard Inc. (NYSE: MA) are nearing the terms to settle a long-running antitrust lawsuit in which the two credit card companies, along with a number of banks that also issue debit and credit cards, will pay the merchants approximately $6.5 billion. How the payment will be split up has not yet been decided, but the goal is to draft the deal by mid-July and submit a final agreement to the court by mid-August.
At issue in the suit are the card-swipe/interchange fees that card networks set and which merchants must pay to banks when consumers use their cards to shop. Merchants allege that the banks have colluded to inflate those fees. The class-action suit was initially brought up in 2005 but many large merchants opted out of the original $7.25 billion settlement reached in 2012 because of terms that they would not be allowed to file lawsuits against the networks regarding future swipe-fee increases. After they opted out, an appeals court invalidated the settlement, stating that merchants were not adequately represented.
Merchants paid card issuers $43.4 billion in Visa and Mastercard credit card swipe fees in 2017, up from the $25.9 billion they paid in 2012. The Dodd-Frank Act in 2010 capped pricing on debit-card swipe fees at no more than $10 billion in assets. Still, there has been a large increase in how much merchants have to pay banks and other networks.The increase is largely due to the gradual shift of consumers using cards for more of their purchases and the introduction of more high-cost cards with generous rewards programs. Several large merchants, including Home Depot Inc. (NYSE: HD) and Amazon (NASDAQ: AMZN) have filed separate lawsuits over the fees. Another term that merchants are challenging are the card networks' "honor all cards" requirement. This rule essentially prohibits merchants from selecting between a network's cards. For instance, merchants that accept one Visa credit card must accept all Visa credit cards. However, swipe fees vary significantly between various cards depending on the customer rewards programs available on each.
In their regulatory filings, Visa and Mastercard boosted their reserves in a litigation account by $600 million and $210 million, respectively, but did not state if this was related to the current settlement.