After nearly ten years of litigation, a resolution has been reached in a legal dispute involving Visa and Mastercard, who have agreed to a substantial settlement totaling $199.5 million. This settlement addresses claims from merchants claiming they incurred excessive costs due to fraudulent transactions, including those stemming from counterfeit, lost, or stolen cards. The terms of the settlement have been filed for approval in a federal court located in Brooklyn.
The roots of this lawsuit can be traced back to 2016 when merchants alleged that the payment networks violated antitrust laws by coordinating changes to their chargeback rules. Chargebacks occur when customers contest charges, often linked to fraudulent activities. The rule changes imposed a burden on merchants, making them liable for chargeback costs unless they upgraded their sales systems to handle chip-enabled cards. Despite facing higher chargeback expenses, merchants found that transaction fees remained unchanged, compounding their financial challenges.
Under the settlement agreement, Visa is set to pay $119.7 million, while Mastercard will contribute $79.8 million. Notably, payments from Discover and American Express earlier amounted to $32.2 million for similar allegations without any company admitting to wrongdoings. Mastercard issued a statement emphasizing its commitment to enhancing transaction technology throughout the process. Visa and the attorneys representing the merchants have not yet issued comments regarding the settlement.
Legal representatives for the merchants hailed the settlement as an “excellent outcome for the class.” They noted that this agreement represents approximately 13% of their maximum damage estimates and exceeds half of more conservative estimates posited by industry experts associated with both Visa and Mastercard.
This settlement stands apart from a more extensive agreement reached in 2019, in which Visa and Mastercard consented to pay $5 billion concerning accusations of improper credit and debit card fee standards. The recent settlement offers crucial financial and legal insights pertinent to merchants and stakeholders within the payment processing sector, effectively marking a significant event in ongoing antitrust matters affecting the payment industry.
Previously, Visa and Mastercard had also settled a class action lawsuit for $197 million, in which Visa was responsible for $104.6 million and Mastercard for $92.8 million. At that time, both corporations denied any faults and did not acknowledge any liabilities.
This latest settlement is a substantial development in the context of legal matters connected to the merchant and payment processing landscape, illustrating ongoing adjustments and challenges faced by entities involved in these intricate financial transactions.