Merchant services play a vital role in contemporary commerce by facilitating the processing of credit and debit card transactions. These services have become essential for businesses that streamline payments and enhance customer experiences. However, the merchant services industry has encountered substantial legal hurdles, especially regarding antitrust issues and the growing prevalence of service class action lawsuits, which have raised important questions about competitive practices and consumer rights.
Visa and Mastercard Antitrust Settlement
In March 2024, Visa and Mastercard reached a substantial settlement with U.S. merchants, potentially concluding nearly two decades of litigation over interchange fees, commonly known as “swipe fees.” As the most notable merchant services lawsuit agreement, it aims to lower and cap these fees, allowing small businesses to collectively negotiate rates similar to larger merchants until 2030.
The settlement is valued at close to $30 billion in savings for merchants. Despite this, industry groups argue that it offers only temporary relief and does not address the fundamental causes of anti-competitive practices.
Merchants often charge swipe fees to consumers, typically 1% to 3% per transaction. The 2005 lawsuit alleged that Visa and Mastercard, along with their member banks, violated antitrust laws by imposing excessive fees.
In 2018, the companies agreed to a $6.2 billion settlement for part of the lawsuit. Both small and large retailers contend that more fundamental changes are necessary to address the high costs associated with credit card transactions.
However, due to subsequent appeals, it wasn’t until December 2019 that the U.S. District Court approved a revised and final settlement of $5.54 billion for the Eastern District of New York. This settlement is intended to compensate U.S. merchants who accepted Visa and Mastercard payments from January 1, 2004, through January 25, 2019, for alleged overcharges related to interchange fees.
The agreed settlement will be distributed among eligible class members who file valid claims by the deadline. Claimants must submit a claim to receive a portion of the settlement.
On August 8, 2024, a federal court granted a 180-day extension for merchants affected by Visa and Mastercard’s interchange fees to submit claims. This extension pushes the deadline to February 4, 2025, offering eligible businesses more time to claim part of the $5.54 billion settlement fund. Initially finalized in 2019, the settlement compensates merchants who accepted Visa or Mastercard payments between January 1, 2004, and January 25, 2019, due to alleged overcharges from interchange fees set by Visa and Mastercard in cooperation with several banks.
By October 2024, additional claim forms were mailed to class members who had not received them initially. Merchants can file claims online at the official settlement site, paymentcardsettlement.com, where they will need specific information such as their Claimant ID and Control Number found on their mailed claim form. Those who didn’t receive a form can still file by submitting their Taxpayer Identification Number on the same website.
The litigation saw intense activity, including over 550 depositions and reviewing more than 60 million pages of documents. Legal maneuvers included motions to dismiss, for summary judgment, and to exclude expert testimony, along with the motion for class certification—none of which were decided before the parties agreed to settle.
The decision to settle followed extensive negotiations facilitated by mediation with experienced mediators. This approach was chosen to avoid continued litigation uncertainties and ongoing costs.
Department of Justice Antitrust Lawsuit Against Visa
The U.S. Department of Justice (DOJ) accused Visa of monopolizing the U.S. debit card market through anti-competitive conduct in a September 2024 antitrust case. The lawsuit asserts that Visa has acted since 2012 to prevent competitors from gaining a foothold and stifle innovation.
As a result, Visa has been able to inflate fees charged to merchants, costs which are ultimately passed on to consumers. Visa holds a dominant position, controlling about 60% of the U.S. debit card market, and garners over $7 billion in fees annually. The DOJ alleges that Visa’s agreements and operational tactics are barriers for smaller competitors and fintech companies like PayPal, Square, and Apple Pay.
According to the DOJ, Visa’s conduct has impacted merchants, tiny businesses, and consumers. The lawsuit is part of the Biden administration’s actions against monopolistic practices, targeting large corporations across various sectors. The government seeks to prove Visa’s violation of antitrust laws, leaving remedy measures to be determined by the court.
Subsequent Merchant Class Action Against Visa
Following the DOJ’s lawsuit, Visa faced a new class-action lawsuit from U.S. merchants. The lawsuit, initiated by All Wrapped Up Signs and Graphix, alleges that Visa has been paying competitors to prevent the creation of alternative networks and has threatened merchants with higher fees if they use other transaction platforms. The new lawsuit echoes the claims made by the Biden administration that Visa’s practices are anti-competitive and harm merchants.
According to the proposed class action lawsuit, Visa controls the debit network market and has engaged in illegal activities that have led to artificially high fees, exceeding what might be in a more competitive market. The lawsuit alleges that Visa has monopolized the network for debit card transactions and has made agreements to penalize businesses that attempt to use alternative networks or methods for processing debit transactions.
Visa, which has denied these allegations, faces increased legal pressure as private litigations could lead to substantial damages. The class action aims to represent potentially thousands of businesses, highlighting Visa’s dominant position in the debit card market and its collection of over $7 billion annually in fees for processing debit transactions.
A statement from Visa General Counsel Julie Rottenberg notes that anyone who has purchased online or at a physical store is aware of the increasing number of companies providing new payment methods for goods and services. She points out that today’s lawsuit overlooks that Visa is only one of several competitors in a debit market that is expanding and seeing new participants succeed.
PNC Merchant Services Settlement
In November 2021, PNC Merchant Services and several small businesses agreed to a $14.5 million settlement that concluded two class-action lawsuits. The suits accused the company of overcharging clients on credit card processing fees. PNC consented to distribute up to $10 million among more than 200,000 class members, covering administrative costs and legal fees.
The settlement also included policy changes, such as providing customers with additional notice before imposing an annual fee, refraining from charging early termination fees and obtaining customers’ written consent before imposing monthly paper statement fees. The settlement class includes merchant customers who used PNC for payment card processing services and paid at least one of the fees (annual fees, early termination fees, and paper statement fees) between October 2011 and the date of the settlement’s approval.
Merchant Lynx Services Lawsuit
In April 2023, a class-action lawsuit was filed against Merchant Lynx Services, alleging that the company imposed unauthorized and excessive card processing fees on small businesses. The lawsuit claims that Merchant Lynx charged fees that differed from those set in the company’s “Merchant Application and Agreement.”
The lawsuit aims to represent all merchants across the United States charged fees by Merchant Lynx Services that differed from those agreed upon in the company’s contracts.
Legal Challenges to Brokers’ Cash Practices
In September 2024, wealth management firms such as Ameriprise Financial, LPL Financial, and UBS faced increasing legal challenges over handling clients’ uninvested cash in low-interest sweep accounts. Lawsuits filed against Ameriprise and LPL, seeking class-action status, claim the firms failed to act in their client’s best interest by not negotiating higher returns on uninvested cash despite Federal Reserve rate hikes starting in 2022.
Similar legal actions have been initiated against UBS, accusing it of offering lower interest rates than firms like Fidelity and Vanguard. This surge in litigation reflects growing discontent with these firms’ interest policies, which have previously faced regulatory scrutiny and investor lawsuits. Ameriprise and LPL defend their cash-sweep programs as short-term, practical solutions rather than long-term investment strategies. They assert that their practices comply with legal and regulatory requirements and plan to defend against the lawsuits vigorously.
Implications for Merchants and Consumers
These legal developments have significant implications for both merchants and consumers. For merchants, particularly small businesses, settlements, and ongoing lawsuits may lead to reduced processing fees and more favorable terms when credit and debit card payments are accepted. This could result in cost savings and increased profitability.
Lower merchant fees may translate to lower prices for goods and services for consumers as businesses pass on the savings.
Conclusion
The legal cases related to credit card processing in the merchant services industry highlight the ongoing complexities and legal pressures facing card networks, financial service providers, and merchants alike. The Visa and Mastercard antitrust settlement provides some immediate relief to merchants by capping and reducing interchange fees and introducing provisions for smaller businesses to negotiate collectively. However, concerns persist over systemic issues in the credit and debit card processing sectors, as seen in new class actions and the DOJ’s antitrust suit against Visa, which accuses the company of monopolistic practices that hinder competition and innovation.
These legal changes could lower transaction costs and fairer terms for merchants, especially small businesses. Additionally, the resulting cost savings might allow merchants to reduce prices for consumers, who indirectly bear the cost of these fees. Nevertheless, the legal landscape remains active, as further actions may unfold to address remaining antitrust concerns, affecting both the industry’s regulatory framework and the competitive dynamics of payment processing.
Frequently Asked Questions
What are the key components of the 2024 Visa and Mastercard antitrust settlement, and how do they impact merchants?
The 2024 Visa and Mastercard settlement lowers credit interchange rates by four basis points and caps these rates for five years. It also allows merchants more flexibility with payment methods and the right to negotiate collectively on rates until 2030, reducing transaction costs and providing greater control over payment processing.
How does the Department of Justice’s 2024 antitrust lawsuit against Visa affect the debit card market?
The DOJ’s 2024 lawsuit claims Visa’s practices inflate debit card fees, limiting competition and innovation. If successful, the case could lower fees and increase competition in the debit card market, affecting how debit transactions are processed and priced.
What is the $5.54 billion settlement status for merchants who accepted Mastercard and Visa payments between 2004 and 2019?
Merchants who accepted Mastercard and Visa payments between 2004 and 2019 have until February 4, 2025, to submit claims for the $5.54 billion settlement. Claims can be filed at paymentcardsettlement.com using the Claimant ID and Control Number or by providing a Taxpayer Identification Number if no form was received.
