MA MasterCard Incorporated

By AnnaMaria Andriotis and Brent Kendall 

The Supreme Court on Monday declined an invitation to rescue a $7.25 billion antitrust settlement over fees between Visa Inc. and Mastercard Inc. and retailers, effectively clearing the way for merchants to sue for additional charges incurred in recent years.

This raises the prospect that Visa and Mastercard could face higher legal costs. Retailers such as Macy's Inc., Home Depot Inc. and Target Corp. that had opted out of the settlement had brought lawsuits against the card companies, but these covered fees from before 2013. Now, the retailers may be able to sue over fees after that period.

The Supreme Court decision also creates an opening for legal action by merchants who want to challenge moves by Visa and Mastercard to raise so-called credit-card swipe fees in the future.

Those fees are at the heart of the long-running legal battle. Whenever a consumer uses a credit card for a purchase, merchants pay a swipe fee that is divided between a number of parties including card companies and banks, among others.

Who has the power to set these fees doesn't directly affect consumers. Rather, it revolves around the question of who has the power to set the swipe fees, how high they will go and how they get divvied up among the many behind-the-scenes players in a credit-card transaction.

Visa declined to comment on the Supreme Court's action. A Mastercard spokesman said the company "will continue to work with all parties to ensure a proper resolution of this matter as it moves forward" in federal courts.

The Supreme Court said in a brief order said it won't review a federal appeals court decision from last June that invalidated the settlement between the card companies and retailers. In that ruling, the New York-based Second U.S. Circuit Court of Appeals said the settlement was problematic because some groups of merchants weren't adequately represented.

The appeals court found the settlement had problems because it sought to cover two groups of plaintiffs with different interests: One group of merchants that was in line to receive monetary damages based on credit-card fees they paid in the past, and another group who wanted changes to the card companies' rules in the future.

The appeals court found the deal shortchanged those merchants who were focused on the future card rules.

The legal battle dates back to a class-action lawsuit originally brought by a small group of merchants that argued Visa and Mastercard charged inflated swipe fees.

Large merchants and trade groups opposed the $7.25 billion settlement because they said the amount was too low and because of a provision that said that merchants -- including those that opted out of the settlement -- wouldn't be able to bring future lawsuits related to credit-card swipe fees against Visa and Mastercard.

The Supreme Court's decision to stay out of the case leaves legal uncertainty for Visa and Mastercard, which already have been defending the case for a decade.

Merchants had challenged a series of card-industry rules as being anticompetitive, including one referred to as the "honor all cards" requirement. That rule meant stores had to accept all Visa and Mastercard credit cards no matter the varying fees associated with them. Other rules prohibited charging different prices for different types of payment.

The Supreme Court's decision to reject the case also raises questions about whether card networks could encounter more pressure related to how they establish credit-card swipe fees. Retailers, with backing by trade groups including the National Retail Federation, have taken legal action to change the way credit-card swipe fees are set.

Many retailers don't want Visa and Mastercard to set the fees anymore. Rather, they would like to shift this to individual banks, a move they argue would create more competition and result in lower fees for retailers.

In the wake of the Supreme Court's action, the focus of the case will shift back to the U.S. District Court for the Eastern District of New York, where additional proceedings are ongoing. It is possible the card companies and the two different groups of plaintiffs could try to strike new settlements.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com and Brent Kendall at brent.kendall@wsj.com

(END) Dow Jones Newswires

March 27, 2017 16:28 ET (20:28 GMT)

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