An Interchange Class-Action Settlement Inches Forward With a Recent Court Action

The federal court overseeing a $5.54-billion settlement between millions of card-accepting merchants, on one hand, and Visa Inc. and Mastercard Inc., on the other, over interchange costs recently took several steps that ultimately could get payments out to merchants. But checks still won’t be in the mail for some time.

“I don’t think folks should expect anything in 2024, maybe 2025 to receive proceeds from the settlement,” Sam Wares, director of client success at Omaha, Neb.-based merchant-acquiring consulting firm TSG tells Digital Transactions News.

The settlement arose from merchant lawsuits against the card networks dating back to 2005 that challenged card-acceptance rules and interchange, the controversial fee set by the networks and paid to card issuers by acquirers, which pass the expense on to their merchant clients. Visa and Mastercard in 2012 first agreed to settle the cases, which had been consolidated into a massive class action overseen by the U.S. District Court in Brooklyn, N.Y., but a federal appellate court vacated the settlement in 2016, leading to more action in the district court.

What’s before the court now is a pending payout of network-funded monetary damages that won court approval in 2019 in the case dubbed MDL (for multi-district litigation) 1720.

Last week, presiding Judge Margo K. Brodie approved several items necessary for getting payments to merchants. They included approval of the claim form and permission for the settlement administrator to begin sending those forms to class members in December, according to TSG. Brodie also okayed the administrator’s plan to hire a public-relations firm to make eligible merchants aware of the settlement.

Any merchant that accepted Visa- and Mastercard-branded cards in the U.S. between January 2004 and up to Jan. 25, 2019, is potentially eligible to receive payments, according to the court-approved informational Web site about the case, paymentcardsettlement.com. Some issues involving gas stations and franchise businesses may still need to be resolved, according to Wares.

Many large merchants opted out of the damages portion and instead pursued their own lawsuits against the card networks over rules and interchange. As of September 2022, Visa had reached settlements with merchants representing approximately 58% of the Visa-branded payment card sales volume of merchants who opted out of the amended settlement, according to the company’s annual report for fiscal 2022. Corresponding figures for Mastercard were not immediately available.

While many merchants have gone out of business since 2005, “upwards of 16 million” businesses potentially could be eligible for damages, Wares says. The administrator is using the last known addresses of defunct merchants, he says. TSG is working with MCAG, a class-action settlement firm that helps claimants get payments, to assist merchants with payouts from the MDL 1720 case.

This latest court action comes as controversy about interchange continues to rage. Pending in Congress is the Credit Card Competition Act, a bill that would regulate credit card interchange in a manner somewhat similar to what the Durbin Amendment did to debit card interchange back in 2011 by promoting merchant choice in routing credit transactions.