Visa and Mastercard have reached a class action settlement that will lower the fees they charge merchants for credit card transactions and cap those charges for a period of five years, the companies said Tuesday in separate press releases.

The two card network giants have been battling the merchants in court for nearly two decades, fighting billions of dollars in claims that they overcharged merchants when customers swiped their credit cards to pay for products and services. Some of the biggest retailers in the U.S. have been involved in the litigation, including Home Depot and 7-Eleven as well as merchants such as Starbucks.

At issue have been the interchange fees, also known as swipe fees, that merchants pay to bank card issuers and the networks. The plaintiffs argued they had paid too much to the networks in fees over a period of years.

“Mastercard will have resolved the vast majority of all pending U.S. merchant litigations that are directed at seeking changes to the company’s interchange structure and merchant acceptance rules,” the company said in its release.

The only litigants that wouldn’t be covered by the settlement announced Tuesday would be those who may have opted out of a prior settlement, said a Mastercard spokesperson. “The settlement covers all merchants in the U.S. that accept Mastercard and Visa,” the spokesperson said.

As far as how many merchants are involved in the settlement; how much will be paid to those that are settling; and how much interchange fees would be reduced, the spokesperson referred to the plaintiffs’ attorneys, who couldn’t immediately be reached for comment. Visa also didn’t immediately respond to a request for comment.

The settlement will also revise the networks’ rules with regard to transactions and surcharges. “The settlement gives merchants greater flexibility at the point-of-sale, including the opportunity to steer to preferred payment methods and more optionality around surcharging,” Visa said in its release Tuesday.

The settlement is still pending until the judge overseeing the case in U.S. District Court for the Eastern District of New York has a chance to rule on whether to approve it.

Expected rule change savings for merchants

The settlement is expected to provide at least $29.79 billion in savings over five years to merchants as a result of the lowered fees and temporary cap, according to a separate Tuesday press release from lawyers representing the plaintiffs.

Changes in the card companies’ rules will also mean that most transactions will be “eligible to be competitively priced by merchants,” according to the lawyers, whose release said they had worked on the case for eight years.

The settlement comes as Congress members debate the proposed Credit Card Competition Act, a bill that seeks to require that bank card issuers make an alternative to Visa and Mastercard available to merchants for processing credit card transactions. While the bill has failed to make much headway recently, it does have bipartisan support.

"This is about securing policy changes that empower merchants over the long term, promote competition and restore balance to the market,” Michael Freed, a lawyer with Freed Kanner London & Millen, said in the release.

The settlement also provides $15 million to educate merchants on the settlement and rule changes, which could be particularly beneficial to smaller merchants.

“In addition to rollbacks and caps, a merchant education program will facilitate merchant understanding of the rules changes and the benefits that can be achieved," Linda Nussbaum, an attorney with the Nussbaum Law Group.  

The settlement pertains to all merchants who accepted Visa and Mastercard debit or credit cards since December 18, 2020 though it stems from a 2005 lawsuit brought by the merchants. The injunctive relief obtained here follows on a $5.54 billion settlement for all merchant class members approved by the Second Circuit Court of Appeals in March 2023, the law firms’ joint release said.

The settlement was filed in the U.S. District Court in New York on Tuesday.

Litigants’ attorneys disagree over settlement

That appellate court previously divided the case into two separate groups of lawyers, with one pursuing the damages claims, and a second group pursuing injunctive relief regarding industry rules. The prior settlement reached last year addressed damages, and resulted in the billion-dollar payment for the class, whereas the settlement reached this week was aimed at addressing industry rule changes.

The rule changes proposed in the settlement this week are designed to put an end to a 25-year rise in interchange fees that have had a “relentless upward spiral,” according to the press release from the lawyers who negotiated the settlement.

In addition to the five-year cap on interchange fees posted as of December 31, 2023, Visa and Mastercard agreed that the swipe fees must be “at least seven basis points below the current average rate” for that period as well.

In addition, the pact proposes a roll-back of the posted swipe fee for “every merchant by at least four basis points for at least three years,” according to that release.  

While the settlement terms could go by the wayside after the five-year period elapses, merchants would have the right to sue again if need be.

“Once they agree to a reform, it’s almost impossible for them to go back on it,” Steve Shadowen, an Hilliard Shadowen attorney who worked on the settlement, said in an interview Tuesday.

Nonetheless, some lawyers involved in the case who weren’t among those appointed by the circuit court to address the rule changes indicated Tuesday that they’re not satisfied with the latest settlement.

“These rule changes are modest -- a modest rate cap,” said Jeff Shinder, an attorney representing about 40 clients in the case. “This is a pretty meager package after 20 years of litigation,” he added in an interview Tuesday.

Mastercard expects the new rules would take effect in late 2024 or early 2025, according to its release. As part of its procedures, the court will give plaintiffs an opportunity to weigh in on the latest settlement in the next several months before the pact can be finalized.

“We are confident that we, as a group, will continue to press forward and nothing in this settlement is going to stop us from doing that,” Shinder said.

Groups at odds over legislation weigh in

Similarly, some merchant trade groups that have supported the CCCA proposal in Congress piped up to say that the proposed settlement terms were underwhelming. The Merchants Payments Coalition, among others, has backed the CCCA in an effort to inject more competition in a credit card network market dominated by Visa and Mastercard.

“This temporary discount won’t have a lasting or significant impact on costs [for restaurants],” Sean Kennedy, executive vice president of public affairs for the National Restaurant Association, said in a statement emailed to Restaurant Dive. “When you’re spreading out a settlement — even one this big — equally among millions of business owners over a few years, there will be a negligible impact on the costs restaurant operators pay to accept credit cards. The Credit Card Competition Act remains the best solution to fixing the broken credit card processing market.”

“This settlement is a bad deal for merchants,” National Grocers Association Senior Vice President Christopher Jones said in a MPC press release Tuesday. “A few years of very small relief followed by business as usual is not a good outcome from 20 years of litigation,” said Jones, who is an MPC executive committee member.

Still, a trade group representing the card industry, the Electronic Payments Coalition, took the opposite viewpoint.

“The agreement between merchants, Visa, Mastercard and financial institutions has been decades in the making and treats businesses of all sizes equally without government mandates or jeopardizing consumers’ data security and rewards programs,” the EPC Executive Chairman Richard Hunt said in a Tuesday statement. ““Ultimately, the agreement helps small businesses more than a haphazard, experimental piece of legislation that only benefits the largest corporate mega-stores ever would.”