Merchants to Receive $199.5 Million Settlement from Visa and Mastercard in Ongoing Fraud and Chargeback Case
Merchants to Receive $199.5 Million Settlement from Visa and Mastercard in Ongoing Fraud and Chargeback Case
Visa Mastercard Fraud Lawsuit Settlement: $199.5 Million to Compensate Merchants Affected by Chargeback Rules
In a significant development, Visa and Mastercard have agreed to pay a combined total of $199.5 million to settle a class action lawsuit that has been ongoing for nearly a decade. The lawsuit, originally filed in 2016, accused the two payment giants of forcing merchants to absorb some of the costs associated with fraudulent transactions, particularly those involving counterfeit, lost, or stolen cards. The proposed settlement, filed in the U.S. District Court for the Eastern District of New York, is now awaiting approval from Chief U.S. District Judge Margo Brodie.
Overview of the Case
The class action lawsuit, brought forth by merchants, alleged that Visa and Mastercard had violated antitrust laws by coordinating their efforts to change chargeback rules. Chargebacks refer to the reversal of payments triggered by customer disputes, and in this case, the shift in policy exposed businesses to higher costs without any corresponding reduction in transaction fees. According to the plaintiffs, the payment networks made merchants liable for chargebacks if they did not upgrade their point-of-sale systems to support chip-enabled cards. This move, the lawsuit argued, unfairly placed additional financial burdens on businesses, especially those unable to implement the new technology at scale.
Settlement Terms and Payment Breakdown
As part of the settlement, Visa has agreed to pay $119.7 million, while Mastercard will contribute $79.8 million. This settlement follows similar agreements with Discover and American Express, which have already agreed to pay a combined sum of $32.2 million to resolve claims against them. The total payout, therefore, stands at approximately $231.7 million when factoring in the contributions from all four companies. It’s important to note that all four companies involved in the settlement, Visa, Mastercard, Discover, and American Express have denied any wrongdoing in agreeing to settle the case.
Merchant Reaction and Legal Perspective
Plaintiffs’ attorneys have expressed satisfaction with the outcome of the settlement, calling it "an excellent outcome for the class." They highlighted that the settlement amount represents about 13% of the plaintiffs’ best-case damages estimate, which they argue is a favourable result given the complexities of the case. Furthermore, it exceeds 50% of a conservative benchmark suggested by experts for Visa and Mastercard. While the legal teams for Visa and Mastercard have yet to respond publicly, Mastercard issued a statement expressing its commitment to adopting advanced technologies to safeguard transactions. The company emphasized its role in promoting technological solutions to mitigate fraud, ensuring that purchases made with Mastercard are secure at every stage.
Prior Legal Challenges and Larger Context
This settlement is not the first time Visa and Mastercard have faced legal challenges over merchant-related issues. In 2019, both companies agreed to pay $5 billion to resolve separate merchant claims regarding their alleged involvement in fixing credit and debit card fees. The proposed settlement in this latest case is distinct from the 2019 agreement, addressing different issues related to chargeback liability and fraud-related costs. The ongoing legal battles highlight the growing tension between payment networks and merchants, as businesses continue to face mounting costs associated with fraud prevention and technology upgrades.
Legal Teams Involved
The case, titled B&R Supermarket Inc et al v. Visa Inc et al, has seen multiple legal teams representing both the plaintiffs and the defendants. For the plaintiffs, the legal team includes prominent attorneys such as George Aguilar and Michael Nicoud of Robbins, John Devine of Devine Goodman & Rasco, and Thomas Amon of the Law Office of Thomas G. Amon. On the defence side, Visa is represented by Matthew Eisenstein and Robert Vizas of Arnold & Porter Kaye Scholer, while Mastercard’s legal team includes Kenneth Gallo and Brette Tannenbaum of Paul, Weiss, Rifkind, Wharton & Garrison.
The settlement marks a significant moment in the ongoing legal discourse surrounding the practices of major payment networks like Visa and Mastercard. While both companies have denied any wrongdoing, the substantial financial settlement underscores the legal and financial challenges that merchants continue to face in the evolving landscape of payment processing. As the settlement awaits judicial approval, the case will undoubtedly set a precedent for future disputes between payment networks and businesses.
Merchants who were part of the class action lawsuit are expected to benefit from the settlement, but the broader implications of this case—particularly concerning the responsibilities of payment networks in managing fraudulent transactions—could influence future regulations and business practices within the payment processing industry.
