Court Grants Preliminary Approval to $38 Billion Visa and Mastercard Swipe Fee Settlement

After more than two decades of antitrust litigation, a federal judge in Brooklyn has granted preliminary approval to a sweeping $38 billion settlement between Visa, Mastercard, and approximately 12 million U.S. merchants. U.S. District Judge Brian Cogan ruled on June 9, 2026, that the revised agreement to cap credit card interchange fees is fair, reasonable, and adequate, signaling a likely end to a legal battle that began in 2005.[1][2]

The settlement targets the core mechanics of swipe fees—the hidden costs merchants pay to card-issuing banks and networks every time a consumer uses a credit card. These fees have ballooned alongside the rise of electronic payments and premium rewards programs. In 2025 alone, Visa and Mastercard collected an estimated $118.8 billion in U.S. swipe fees, up from just $25.6 billion in 2009, with the average fee hovering around 2.35%.[1][2]

The agreement introduces two distinct financial mechanisms to curb these costs. First, it mandates a 10-basis-point reduction across all posted credit interchange rates for a period of five years. For a merchant processing $500,000 a month in credit card volume, this across-the-board trim translates to roughly $6,000 in annual savings.[3]

The second, more structural financial change is a hard cap on standard consumer cards. For the next eight years, the interchange rate on basic consumer credit products will be capped at 1.25%. Because standard consumer cards typically carry interchange rates between 1.4% and 1.6%, this cap effectively removes 15 to 35 basis points from a massive share of everyday retail transactions.[3]

Beyond the rate cuts, the settlement fundamentally rewrites the rules of card acceptance by dismantling the longstanding Honor All Cards mandate. Historically, if a merchant wanted to accept a basic Visa or Mastercard, network rules forced them to also accept the brands' premium rewards cards, which carry significantly higher processing fees to fund cash-back and travel perks.[2][5]

Under the newly approved framework, credit cards are segmented into three distinct categories: commercial, premium consumer, and standard consumer. Merchants now possess the explicit right to decline higher-cost premium and commercial cards while continuing to accept standard cards. This gives retailers unprecedented leverage to control their payment mix at the point of sale.[4][5]

The settlement also grants merchants expanded flexibility to apply surcharges to card transactions. Retailers can now implement targeted surcharges on specific, high-cost card networks or premium card tiers, effectively passing the cost of rewards programs directly to the consumers who choose to use them, provided state laws allow it.[3][7]

This preliminary approval marks a significant reversal from June 2024, when U.S. District Judge Margo Brodie rejected a previous $30 billion iteration of the settlement. That earlier proposal would have lowered fees by only 0.07 percentage points and left the Honor All Cards rule intact, prompting the court to rule that it did not provide sufficient relief to merchants.[2][5]

Proponents of the revised deal argue it represents a triumph of market-based negotiation over government intervention. Nobel Prize-winning economist Joseph Stiglitz, retained by the plaintiff merchants, estimated that the combined rate cuts and rule changes will save merchants $38 billion by 2031 and generate $224 billion in total economic benefits.[5]

However, the settlement remains deeply contested by the world's largest retail trade groups. The National Retail Federation and the National Association of Convenience Stores formally opposed the deal, arguing that a 10-basis-point cut is a drop in the bucket that barely offsets the 9-basis-point increase in average interchange rates seen between 2023 and 2024 alone.[1][3]

These massive retail coalitions argue that the settlement's rule changes are practically unworkable at the checkout counter. They contend that large merchants cannot realistically reject premium rewards cards without alienating their most affluent customers, rendering the end of the Honor All Cards rule a hollow victory.[1]

Instead of a court settlement, these retail groups are lobbying Congress to pass the Credit Card Competition Act. This proposed legislation would mandate that large banks offer merchants a choice of at least two unaffiliated payment networks for processing credit card transactions, theoretically driving down fees through forced competition.[4][5]

On the other side of the legislative battle are credit unions and smaller community banks, who rely heavily on interchange revenue to fund free checking accounts, fraud protection systems, and community investments. These institutions support the settlement precisely because it averts the more drastic, structural revenue cuts that the Credit Card Competition Act would impose on the banking sector.[4][7]

Free-market analysts and banking advocates warn that capping credit card fees could trigger a cascade of unintended consequences for consumers. They point to the 2010 Durbin Amendment, which capped debit card interchange fees. Studies showed that banks responded to the lost debit revenue by slashing free checking accounts and increasing minimum balance requirements, which drove up the number of unbanked Americans.[6]

If credit card interchange revenue drops significantly, banks are widely expected to compensate by diluting the value of credit card rewards programs. The generous cash-back matches, airline miles, and sign-up bonuses that consumers have come to expect are directly funded by the swipe fees that this settlement seeks to curtail.[6]

While Judge Cogan's preliminary approval allows the settlement to move into the class-notice phase, the legal saga is far from over. Final approval will require several months of court review and a fairness hearing later in 2026. With major retail groups already promising to appeal the decision to the 2nd Circuit U.S. Court of Appeals, the ultimate implementation of the 1.25% cap and the new checkout rules may be pushed well into 2027.[1][3]