Every time a consumer swipes a credit card at the register, a tiny portion of the transaction silently and undetectably vanishes into the coffers of Visa, Mastercard, and their banking partners. Most customers are unaware. The majority of retailers never stop observing. A federal judge in Brooklyn granted preliminary approval to a revised $38 billion settlement between the two card giants and the merchants who have spent two decades claiming they were being overcharged last week, marking a significant turning point in the tension that has been simmering since at least 2005.
The agreement was described by US District Judge Brian Cogan as “fair, reasonable, and adequate,” a statement with significant legal weight. Almost every company in the nation that has ever accepted a Visa or Mastercard payment is covered, totaling over 12 million merchants. It’s a huge sweep. However, calling something fair doesn’t satisfy everyone, and in this instance, a number of influential retail groups made it apparent that they aren’t done resisting.
The settlement did not appear overnight. It came after an earlier $30 billion proposal was rejected in June 2024 after it was deemed insufficient by another judge. Critics referred to that agreement as little more than a gesture because it would have reduced swipe fees by just 0.07 percentage points over a five-year period. The updated version goes even farther. Visa and Mastercard decided to cap standard consumer card rates at 1.25 percent for eight years and reduce interchange fees by 0.1 percentage points for five years. Additionally, merchants received what they had long sought: the freedom to select the card categories they accept, including the ability to reject premium rewards cards if they so choose.
It may not seem like it, but that final point is crucial. The cards with the highest swipe fees are rewards cards, which award loyal customers with cash back and frequent travelers with miles. For years, retailers have covertly funded those benefits without reaping any rewards. The contentious “honor all cards” rule, which previously mandated that retailers accept every card in a network or none at all, is loosened by the updated settlement. It’s a significant compromise. The judge himself acknowledged that it is a different matter entirely whether merchants will actually exercise that option in practice.
The biggest retail trade association in the world, the National Retail Federation, has already hinted at more difficulties. “Many more objections” were anticipated by the National Association of Convenience Stores. Their main grievance is that merchants would still have to pay excessive fees to accept rewards cards, and they would not be able to refuse specific card issuers. Judge Cogan admitted that some of these objections were valid. He simply came to the conclusion that, given what a trial might or might not produce, the settlement only needed to be the best result that was practically possible.
That framing has an almost worn-out quality. After twenty-one years of litigation and billions of dollars in legal fees, the court is effectively stating that this is as good as it gets at this point. The plaintiffs hired Nobel Prize-winning economist Joseph Stiglitz, who claimed the agreement could save retailers $38 billion by 2031 and provide $224 billion in additional consumer benefits. On Tuesday, Visa’s stock increased by 1.7%. Mastercard increased by 2%. At the very least, markets appeared to see the decision as a net benefit for the networks, which probably says something.
Given the ongoing legal challenges, analysts speculate that full finalization might not occur until 2029. As of Tuesday, neither Walmart nor the Merchants Payments Coalition had made a statement regarding their opposition to the settlement. It’s still unclear if this deal, flawed as it is, will endure or if the objections will become strong enough to compel another revision.
The economics of card payments in the United States are still hotly debated. This settlement won’t significantly reduce the fees that Visa and Mastercard paid in the US in 2025 alone, which totaled $118.8 billion, up from $25.6 billion in 2009. The direction is correct. The extent is questionable. It appears that there are still a few years left in the argument.
