After nearly a decade, Visa and Mastercard have agreed to pay merchants $199.5 million to settle a class-action lawsuit over chargebacks.
Merchants filed suit after the companies changed the rules around chargebacks, which occur when payments are reversed following customer disputes.
Retailers alleged that Visa and Mastercard violated antitrust laws by coordinating to alter the rules, making merchants responsible for chargeback costs unless they updated their point-of-sale systems to include chip readers.
Merchants said this change increased their expenses, as they faced higher chargeback costs while transaction fees remained unchanged. Although the credit card companies have admitted to no wrongdoing in the case, Visa agreed to pay $119.7 million and Mastercard will pay $79.8 million to settle the lawsuit.
Creating Contention
As cards have become the predominant payment method in many parts of the world, Visa and Mastercard have assumed a central role in the financial services landscape. However, many merchants have pushed back against practices they consider unfair.
For example, London’s Competition Appeal Tribunal recently ruled that the interchange fees charged by these companies violate Europe’s competition law, following lawsuits filed by hundreds of merchants.
Additionally, a law in Illinois banned credit and debit interchange fees on taxes and tips. While many merchants welcomed this legislation, it sparked concerns among financial institutions, which argued that such fees are critical to the ongoing operation of the credit card industry.
Approving the Settlement
While these actions are significant, one of the largest lawsuits involved the decades-long battle between U.S. merchants and Visa and Mastercard over interchange fees.
A $30 billion settlement in this longstanding suit was reached last year. Although many declared the settlement as a victory for merchants, Chief U.S. District Judge Margo Brodie ultimately rejected it, arguing that it didn’t go far enough to compensate retailers.
Similarly, many are calling the most recent settlement a win for merchants. However, the agreement still requires approval, and since the lawsuit was filed in a Brooklyn Federal Court, Judge Brodie will have the final say on this settlement as well.