A prolonged legal dispute resulting from allegations against two prominent payment networks has culminated in a tentative settlement amounting to $199.5 million. This agreement, which seeks to resolve claims from merchants who contend they bore the financial burdens associated with fraudulent activities involving counterfeit, lost, or stolen cards, has been submitted for judicial approval in a federal court located in Brooklyn.
The legal saga began in 2016, when merchants accused these payment giants of breaching antitrust regulations by coordinating to modify chargeback policies. Chargebacks refer to the reversal of payments, commonly initiated when customers dispute charges, usually under fraudulent circumstances. The modification in chargeback rules placed the financial responsibility on merchants for these transactions unless they upgraded their point-of-sale systems to accommodate chip-enabled cards. As transaction fees remained stagnant while chargeback costs increased, merchants found themselves facing a significant economic strain.
Under the proposed settlement terms, one of these companies will contribute $119.7 million, while the other will provide $79.8 million. Previously, other major players in the industry, such as Discover and American Express, committed to a combined payment of $32.2 million in relation to similar issues.
It’s important to note that settling this class action lawsuit does not imply any admission of wrongdoing by the companies involved. One payment network has publicly stated its commitment to protecting transactions through advanced technological measures, while the other and the lawyers representing the merchants have not yet issued comments regarding the settlement.
Counsel for the merchants characterized the settlement as a highly favorable outcome, pointing out that it represents approximately 13% of the maximum damages they estimated, as well as more than half of a conservative benchmark previously suggested by experts working with the payment companies.
This resolution stands apart from a previous settlement totaling $5 billion, agreed upon in 2019, which addressed claims related to improper practices regarding credit and debit card fees. The current situation highlights the continuous challenges faced within the payment processing sector, illustrating ongoing concerns over fairness and equitable treatment for merchants.
Prior to this latest agreement, these payment networks had agreed to pay $197 million to settle a different class action concerning inflated ATM fees, with one network covering $104.6 million and the other $92.8 million. Both companies again maintained their stance of no wrongdoing throughout these settlements.
Overall, this situation sheds light on significant antitrust issues within the payment processing landscape, providing key insights for merchants and those following developments in the industry. As the proposed settlement awaits final approval, it underscores the ongoing complexities and evolving nature of the financial services sector, where merchants must navigate a landscape influenced by the actions and policies of powerful payment processors.