A $30 billion settlement between Visa (NYSE:V), Mastercard (NYSE:MA) and retailers to cap credit-card swipe fees is likely to be rejected by a federal judge in Brooklyn, marking a setback in a litigation battle that has spanned two decades, Bloomberg News reported.
Judge Margo Brodie of the US District Court for the Eastern District of New York hinted during a hearing Thursday that she is unlikely to approve the deal, according to court records. Although Brodie has not officially ruled, she mentioned she would “issue a written decision” in the coming days, as noted in a summary of her courtroom comments.
Visa and Mastercard shares fell 0.8% and 0.6% in premarket trading Friday, respectively.
Retailers have long sought to reduce their share of the costs associated with accepting card payments, known as interchange fees. These fees are largely passed on to the banks that issue the cards, including major players like JPMorgan Chase (NYSE:JPM) and Citigroup (C).
The settlement, announced in March and pending court approval, would have allowed merchants to charge consumers extra for transactions involving Visa or Mastercard credit cards. It also included provisions to enable pricing tactics that steer consumers towards lower-cost cards.
“The court’s comments strongly suggest that she won’t accept the settlement,” said analysts at Bloomberg Intelligence.
“While Judge Brodie doesn’t seem convinced that larger retailers should be allowed to opt out from the settlement, provisions like changes to digital wallet acceptance rules and some state bans on surcharges likely present real adequacy issues.”
Spokespeople for both Visa and Mastercard said they were “disappointed” with the judge’s stance.
“We believe the settlement presented a fair resolution of this long-standing dispute, most notably by giving business owners more flexibility in how they manage their card acceptance activities,” a representative for Mastercard stated. “We will pursue our options to ensure a proper resolution of this matter.”
Visa’s spokesperson added that “continued engagement between industry and the merchants is the best way forward.”
Analysts at Bank of America said they don’t expect MA and V shares to react more than modestly negatively on this development, however, “a rejection of this settlement would be an unexpected development which would create more uncertainty around the timing and outcome of a potential resolution,” they noted.
Analysts at Barclays voiced similar remarks, and said they view the news as “modest negative.” Simultaneously, based on the muted market reaction when the settlement was initially announced, they believe that “investors have high conviction that realistic settlement terms will prove to be quite manageable for the networks. “
“In this context, we think V/MA may underperform only modestly in tomorrow’s tape,” Barclays added.