Wall Street-Backed Settlement Leaves Anti-Consumer Credit Card Duopoly in Place
Washington, D.C. — Demand Progress and other public interest organizations objected to an attempt by Wall Street to win judicial approval for a legal settlement that would lock in the anti-competitive practices of Visa, Mastercard and the big banks that dominate credit card issuance.
In a long-running antitrust lawsuit known as Multi-District Litigation 1720, U.S. District Judge Brian Cogan in the Eastern District of New York has given preliminary approval to a proposed settlement that would lock in an anticompetitive market for credit card services on which small businesses and consumers rely.
“In the 20 years since this litigation began, there has been precious little attention paid to the simple fact that the courts are not allowed to bless anti-competitive arrangements,” said Carter Dougherty, senior fellow for antimonopoly and finance at Demand Progress Education Fund. “Settlements cannot override established laws, and this proposal is simply a price-fixing agreement among the most powerful incumbents in the credit card industry that violates foundational antitrust law.”
Demand Progress Education Fund, American Economic Liberties Project, Small Business Majority and Consumer Reports filed the objection.
Visa and Mastercard set the “swipe fees” that merchants – and by extension, consumers – pay each time a customer uses a payment card, with most of that money going to JPMorgan Chase, Bank of America, Capital One and the other megabanks. Those fees (for debit and credit) amounted to $198.25 billion last year, or about double what they were before the pandemic.
“In the end, consumers pay those fees and pad the bottom lines of Wall Street giants that are already massively profitable,” Dougherty said. “Consumers and merchants have a common interest in reforming this broken system.”
Also, as public interest groups have previously argued, the proposed settlement offers little in the way of structural remedies that would create a competitive market for payment services. It merely offers a small discount on swipe fees for a short period of time, while leaving loopholes for Visa and Mastercard to keep raising costs. And, it immunizes them from further liability. Also, the settlement was negotiated without the participation of the vast majority of merchants, who have also objected to it.
More importantly, the settlement violates the law. Congress passed the Sherman Act, the historic antimonopoly statute in the United States, to “mak[e] competition rather than monopoly” the rule in the American economy, the groups wrote in the objection. By giving judicial approval to this proposed settlement, the court would sanction a violation of antitrust law.
“[T]he Proposed Settlement Agreement is unreasonable per se because it is a price-fixing contract between two direct competitors—Visa and Mastercard—in the relevant market for general-purpose credit-card transactions,” the groups wrote in the objection. “Specifically, the Proposed Settlement Agreement nakedly restrains Visa and Mastercard’s autonomy to compete with each other on price.”
“Visa and Mastercard are raking in billions by charging Main Street businesses just to process a transaction. This proposed settlement does nothing to stop that anti-competitive conduct, and nothing to relieve the squeeze on businesses that have no choice but to pay,” said Morgan Harper, Director of Policy and Advocacy at the American Economic Liberties Project. “We're proud to stand with consumer and business groups urging the court to reject a settlement that lets Visa and Mastercard keep violating the Sherman Act. In the middle of an affordability crisis driven by unchecked monopoly power, the court should not bless the status quo.”
“Swipe fees are further shrinking small businesses’ bottom lines at a time when rising expenses are already stretching them thin,” said Alexis D’Amato Falvey, Small Business Majority Senior Director of Federal Government Affairs. “Since swipe fees are such an immense burden for entrepreneurs, we oppose this settlement because it does not meaningfully lower costs for small businesses. Instead, it allows Visa and Mastercard’s anticompetitive behavior to persist, and without meaningful changes to swipe fees, small businesses will continue to absorb billions of dollars in expenses or will be forced to pass their costs along to their customers.”