On June 9th, U.S. District Court Judge Brian Cogan granted preliminary approval for Visa and Mastercard's revised $38 billion settlement that stems from a 2005 class-action lawsuit by merchants. The suit accused Visa, Mastercard, and banks that issue their payment cards of violating antitrust laws, causing merchants to pay excessive fees. The judge found that the settlement was "fair, reasonable, and adequate" and provided "more extensive relief" than an earlier settlement offer.
Settlement Details
After a previous $30 billion settlement proposal was rejected in 2024 by U.S. District Judge Margo Brodie who deemed it inadequate, the $38 billion revised offer was proposed in November 2025. It includes a 0.1% reduction in interchange fees for five years and sets a 1.25% rate for standard consumer cards for eight years. It also gives merchants expanded ability to impose surcharges when customers use credit cards.
Particularly significant, the new settlement does away with the "honor all cards rule" which means a merchant will be able to choose which types of Visa or Mastercards it wants to accept. As a result, merchants will be able to refuse cards that have higher interchange fees, such as airline and hotel reward cards. Currently, a merchant is required to accept every type of card issued by a network.
Two experts hired by the plaintiffs, Nobel Prize-winning economist Joseph Stiglitz and University of Washington Professor Keith Leffler, say the $38 billion settlement value reflects the projected reduction in interchange fees through 2031, and that together, the changes resulting from the settlement can save merchants $224 billion, increase competition and benefit consumers.
This $38 billion settlement follows a $5.54 billion settlement, stemming from the same 2005 lawsuit, which was finalized and approved by the Second U.S. Circuit Court of Appeals in 2023. The 2023 settlement provides financial payments to merchants who accepted Visa or Mastercard between 2004 and 2019. It did not address all of the issues raised in the 2005 lawsuit, including a dispute over the rules Visa and Mastercard impose to accept their cards. This new settlement is designed to resolve the remaining issues raised in the 2005 lawsuit. If it does receive final approval, this long running litigation will finally be resolved.
Reaction is Mixed
Visa and Mastercard along with the Electronic Payments Coalition and the Electronic Transactions Association, trade groups that represent the networks and large card issuers, welcomed the ruling. In their respective comments they said the settlement gives merchants flexibility, provides meaningful solutions for businesses and consumers, and balances the interests of all parties.
Not surprisingly, some merchants and trade groups continue to oppose the settlement and reacted negatively to the ruling. Although it offers more benefits than the previous settlement proposal, they feel the interchange reductions are still insufficient and that the antitrust issues have not been adequately addressed. Proposed changes to the "honor all cards rule" are a major point of contention. Some say the changes are meaningless because 80% of customers use reward cards, making it infeasible for merchants to stop accepting those more expensive card types. Others contend changes to the "honor all cards rule" have not gone far enough because merchants will still be required to honor all issuers in a given network, making it impossible for a merchant to accept and reject cards according to which bank issued the card.
Large retailers and trade groups representing major retailers are particularly dissatisfied; several of them have asserted that the five small retailers representing the 12 million merchants making up the class have not adequately represented the interests of large retailers. Additionally, they have complained about being left out of settlement talks with Visa and Mastercard. According to Payments Dive, in a December 2025 objection filed by the National Retail Federation and the Retail Industry Leaders Association, they wrote that the class representatives "lack the necessary experience or judgment to tie the entire merchant community's hands…" In its objection, Walmart said the class representatives had shown "persistent disregard for the interests of large national merchants and their eagerness to sell out these interests for their own benefit."
Despite the objections that have been raised, Judge Cogan found that the settlement met the threshold for approval, commenting that it was the Court's responsibility to determine if the settlement is fair, reasonable and adequate. He added that it was not the Court's responsibility to determine if the settlement was ideal according to class members' varying standards.
According to Reuters, the Judge wrote: "The objectors identify several things that they want to do but can't (e.g., rejecting cards at the issuer-level, surcharging at the issuer-level) and that they theoretically can do but won't (e.g., rejecting premium cards). But the question is not whether the amended settlement constitutes the best possible recovery, end stop – it's whether the amended settlement constitutes the best possible recovery in light of what can be gained and lost through trial."
Battle Will Continue as Settlement Approval Process Unfolds
While preliminary approval is an important development, it is only the first step in the settlement approval process. Next there will be a notice and comment period during which class members can present reasons for supporting or opposing the settlement, and a hearing on the fairness of the settlement will be held before final approval is granted.
Despite the Judge's ruling, the battle will likely continue for some time as a number of merchants and trade groups representing them have said they will continue to challenge the settlement. According to Payments Dive, the general counsel of the National Association of Convenience Stores said they will file an appeal with the Second U.S. District Court of Appeals if Judge Cogan grants final approval.
Verisave's Take:
Preliminary approval is a big deal because it is the most tangible progress that has been made for some time in resolving the outstanding issues stemming from the 2005 lawsuit. Unfortunately, there is still no end in sight as it is clear that no matter what Judge Cogan ultimately rules regarding the settlement, litigation will continue because of the high stakes involved for merchants, the card networks, and the issuing banks.
The Merchants: As the adoption of digital payments was accelerated by the COVID pandemic, merchants' interchange fees have continued to climb, totaling $118.8 billion for Visa and Mastercard in the U.S. in 2025, according to Reuters. As merchants contend with cost pressure on multiple fronts, including inflation and tariffs, they are eager to find cost savings, making growing card processing fees a logical target. Practically, merchants can't do away with credit cards as they enable digital commerce, and customers like to use them; they also help merchants avoid the cost and complexity of managing large quantities of cash. Thus, the optimal outcome for merchants is to keep credit cards as a payment option, but to fight to minimize the associated fees. While they may not be able to ultimately derail the settlement, they are likely hoping at minimum they can extract more concessions from Visa and Mastercard.
The Networks and the Issuing Banks: For Visa, Mastercard and the issuing banks, they clearly want to protect their credit card business model as alternative payment types, such as stablecoin payments, are being developed. They have also been living under the specter of increased regulation in the form of the Credit Card Competition Act which has been introduced several times in the House of Representatives and the US Senate, but which has not gained significant traction – yet. The optimal outcome for them is to reach a settlement that appeases merchants as much as possible, thus hopefully discouraging increased regulation, while protecting as much of their business model as they can. Making concessions on the "honor all card rule" was a big deal and reportedly upset major issuers. The networks and their issuing banks are probably keeping their fingers crossed that the settlement will be approved.
Friction Between Class Members is Not a Sideshow: It is important to explore the complaints that large retailers and some trade groups have made about the class representatives as this development is making settlement of the suit more complex. This tension is the result of a misalignment between the needs and desires of large and small retailers. Large retailers' push to do away with the honor all cards rule at the issuer level is driven by their desire to negotiate interchange rates with issuers, pitting Citi against JP Morgan Chase, etc. to get the lowest interchange rates. The ability to negotiate at the issuer level is not of significant value to small merchants because they do not have the volume or clout to do so successfully. One of the reasons the previous $30 billion settlement was rejected by the previous Judge is because she found class members were not treated equitably relative to one another. Specifically, she found that the benefits of the previous settlement offer were likely to flow disproportionately to small, local merchants. It seems that large retailers feel this is still a problem as evidenced by Walmart's unsuccessful attempt in December 2025 to convince Judge Cogan to decertify the class or allow the carve out of large national merchants so they can pursue their own interests. Interestingly, some large retailers did opt out of the class and chose to pursue litigation on their own, perhaps because they thought they could better represent their own interests. While a number of those cases have been settled, a group of 28 merchants led by GrubHub Holdings has yet to settle.
Stay tuned, this story is far from over!
