What a legal snag in landmark merchant suit could mean for Visa and Mastercard

By Emily Bary

Barclays says investors seem to 'have high conviction that realistic settlement terms will prove to be quite manageable for the networks'

Visa Inc. and Mastercard Inc. reached a landmark settlement earlier this year in a long-running legal battle with merchants, but the presiding judge may not let it take hold.

Chief Judge Margo K. Brodie said Thursday that she "will likely not approve the settlement" and would soon issue a written decision on the matter.

This wouldn't be the first legal snag in a case concerning merchant claims that Visa (V) and Mastercard (MA) ran afoul of antitrust rules with their fees for credit-card acceptance. The battle has run on for almost two decades, and while the financial-damages aspect has mostly been resolved, a past attempt at settling the injunctive component was rejected in 2016 by an appellate court.

The latest attempt at settling the injunctive claims was announced in late March, with merchant-affiliated lawyers saying it could spur nearly $30 billion in swipe-fee savings. Through the deal, Visa and Mastercard had agreed to lower their published credit-card interchange fees and hold off on such fee increases for five years. There were also components meant to clarify rules on surcharging and "steering," a practice that lets retailers incentivize consumers who pay with certain cards.

Barclays analyst Ramsey El-Assal wrote that he thought Visa and Mastercard shares would "only modestly" underperform Friday in the wake of concerns that the settlement was in jeopardy.

"Given the hypothetical possibility that Judge Brodie advocates for more onerous settlement terms, we view today's news as a modest negative," he wrote. "At the same time, based on the muted Street reaction when the current settlement was first announced, we believe investors have high conviction that realistic settlement terms will prove to be quite manageable for the networks."

A Mastercard spokesperson said the company was "disappointed by today's developments."

"We believe the settlement presented a fair resolution of this long-standing dispute, most notably by giving business owners more flexibility in how they manage their card-acceptance activities," the spokesperson said.

Mastercard intends to "pursue our options to ensure a proper resolution of this matter," the statement continued.

Visa expressed disappointment as well.

"We continue to believe that the proposed settlement agreement was the appropriate resolution resulting from lengthy and thoughtful discussions with the merchant class," a Visa spokesperson said. "As we await the court's written decision, we also believe that continued engagement between industry and the merchants is the best way forward."

MarketWatch has attempted to contact lawyers representing the merchants involved in the March settlement.

A different group, the Merchants Payments Coalition, which represents some retailers, supermarkets and other merchants, applauded the judge's commentary.

"While the case has been in court for nearly 20 years, the four basis-point reduction is illusory and would not come close to addressing the fact that the average rate has grown two dozen basis points, from 2.02%, since 2010, according to data from the Nilson Report," the MPC said in a statement.

-Emily Bary

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

06-13-24 2141ET

Copyright (c) 2024 Dow Jones & Company, Inc.