A lengthy legal dispute has seen Visa and Mastercard agree to a total payment of $199.5 million to settle allegations made by merchants who claimed they had been unfairly burdened with costs associated with fraudulent transactions involving counterfeit, lost, or stolen cards. This proposed settlement has been submitted to a federal court in Brooklyn for approval.
The roots of the lawsuit trace back to 2016, when merchants accused the two major payment processing companies of violating antitrust regulations by collaborating on changes to chargeback rules. Chargebacks occur when customers dispute transactions, commonly due to fraud. The alterations in these rules placed the financial responsibility for chargebacks on merchants unless they upgraded their payment systems to accept chip-enabled cards. This increased the financial strain on merchants, as they faced higher chargeback costs while transaction fees remained the same.
Under the terms of the settlement, Visa is set to pay $119.7 million, while Mastercard will contribute $79.8 million. Previously, Discover and American Express had settled similar claims for a combined total of $32.2 million. Importantly, neither Visa nor Mastercard has admitted any wrongdoing as part of this resolution. Mastercard issued a statement emphasizing its commitment to enhancing technology that safeguards transactions throughout their entire process, though neither party, including Visa, has provided immediate comments on the settlement.
Lawyers representing the merchants described the agreement as a favorable outcome, suggesting it reflects about 13% of the maximum damages estimate and more than half of a cautious benchmark predicted by industry experts regarding Visa and Mastercard.
This particular settlement operates independently from a prior $5 billion agreement that Visa and Mastercard reached in 2019 concerning claims of improper practices related to credit and debit card fee structures.
This unfolding situation offers crucial insights into finance and legal matters surrounding the payment industry and serves as a noteworthy example of significant ongoing antitrust settlements in the realm of payment processing.
Previously, Visa and Mastercard had also agreed to settle another class action lawsuit for $197 million, with Visa’s payout amounting to $104.6 million and Mastercard’s to $92.8 million. Again, both companies denied any wrongdoing and did not accept liability, reflecting their ongoing stance throughout these legal processes.