Yes, merchants paid inflated card fees, and a massive class action settlement valued at $5.54 billion confirms it. In February 2019, U.S. District Court Judge Margo K. Brodie approved a landmark settlement that acknowledged Visa and Mastercard, along with financial institutions, engaged in price fixing and anti-competitive practices that artificially inflated interchange fees paid by merchants for credit card transactions. This settlement represents one of the largest class action recoveries in history, covering transactions from January 1, 2004 through January 25, 2019.
The $5.54 billion judgment compensates merchants who filed claims, though the actual recovery per merchant varies widely depending on the size and number of claims filed. The litigation began in 2005 when merchants and trade associations challenged the “honor all cards” rule—a requirement that accepting one Visa or Mastercard product meant accepting all of them, including premium cards with the highest interchange fees. For nearly 15 years, merchants had no choice but to pay whatever interchange rates Visa and Mastercard set. A small grocery store that processed $2 million in card transactions annually might have paid $40,000 to $60,000 in interchange fees each year, with merchants unable to decline the most expensive card products or negotiate rates. The settlement and subsequent proposed amendments represent the first significant shift in merchant leverage in decades.
Table of Contents
- Why Did Merchants Sue Over Card Fees and When Did the Settlement Get Approved?
- What Is the Status of Settlement Distributions and the Revised Settlement Proposal?
- What Are the 2026 Revised Settlement Terms and Why Are Merchants Still Fighting Them?
- How Can Merchants Claim Settlement Benefits and What Documentation Do They Need?
- What Are the Limitations of the Settlement and What Merchants Should Know?
- What Happens if Judge Cogan Approves the Revised Settlement?
- Where Does the Litigation Stand Now and What’s the Outlook?
- Conclusion
Why Did Merchants Sue Over Card Fees and When Did the Settlement Get Approved?
Merchants sued because interchange fees are non-negotiable charges that card networks impose on every credit and debit card transaction processed. These fees are set by visa and Mastercard unilaterally, not negotiated between the card networks and merchants. A typical interchange fee ranges from 1.5% to 3% of each transaction, plus a small per-transaction fee. For large merchants processing millions in card transactions monthly, this cost is substantial—a retailer with $10 million in monthly card sales might pay $150,000 to $300,000 in monthly interchange fees alone. Merchants argued for decades that the fee structure was anticompetitive and that Visa and Mastercard conspired with issuing banks to keep rates artificially high. The settlement was not quick.
The original lawsuit was filed in 2005, and merchants waited 14 years for the first approval. Judge Brodie approved the initial settlement on February 6, 2019. However, the approval faced legal challenges. In March 2023, the U.S. Court of Appeals for the Second Circuit upheld the settlement after an appeal, ending the major legal uncertainty. This appeals court confirmation was critical because it meant the settlement could proceed to actual distribution without further major legal obstacles. The claims filing deadline was set for February 4, 2025, which has now passed, meaning no new merchants can submit claims under the original 2019 settlement terms.
What Is the Status of Settlement Distributions and the Revised Settlement Proposal?
The original $5.54 billion settlement entered the distribution phase after court approval in 2023. On October 30, 2025, the court granted an order approving an initial partial distribution of settlement funds for finalized claims. This means some merchants finally began receiving payments after 20 years of litigation. However, distribution has proceeded slowly because the claims process requires merchants to document their interchange fees paid during the 2004-2019 period, which many smaller merchants struggle to prove without detailed historical records. Large retailers with accounting departments have filed and received payments; smaller merchants have faced barriers.
A complicating factor is that the original settlement terms did not fully satisfy many merchants. In 2026, Visa and Mastercard proposed a revised settlement with substantially different relief provisions. Instead of a one-time payment, the new proposal includes structural changes: a 10 basis point reduction in interchange rates for 5 years, a 1.25% rate cap for standard consumer cards for 8 years, and an estimated $38 billion in projected merchant savings over the relief period. More importantly, the revised terms dismantle the “honor all cards” rule, allowing merchants to decline certain higher-cost Visa or Mastercard credit cards and add surcharges on some cards. This represents the most significant shift in merchant-network relations since the 1970s.
What Are the 2026 Revised Settlement Terms and Why Are Merchants Still Fighting Them?
The revised settlement proposal addresses a key complaint: merchants could never leverage their transaction volume because they had no choice about which cards to accept. Under the new terms, merchants gain the right to decline premium cards that carry interchange rates above certain thresholds and can impose surcharges to offset costs. A restaurant that currently pays 2.8% in interchange on premium rewards cards could theoretically refuse that card or pass a surcharge to cardholders. Additionally, the 1.25% rate cap for standard consumer cards for 8 years would lock in a maximum fee for the most common transaction type.
Despite these improvements, merchant groups opposed approval of the revised settlement in late April 2026 court hearings before Judge Brian Cogan. Some merchants argue the rate reductions don’t go far enough, while others contend that the 8-year duration is too short—interchange fees will revert to current levels after the relief period ends. Large merchants like costco and Amazon have been less vocal about opposition because they have greater negotiating leverage than smaller retailers. A independent bookstore or hardware store will likely see minimal savings because these businesses process far fewer transactions than large retailers, meaning the absolute dollar savings are smaller. Merchants also fear that adding surcharges may reduce card usage and customer satisfaction, creating a business tradeoff that the settlement doesn’t fully address.
How Can Merchants Claim Settlement Benefits and What Documentation Do They Need?
For the original $5.54 billion settlement with the February 4, 2025 claims deadline that has now passed, no new claims can be filed. Merchants who filed claims before the deadline are in the queue for payments from the partial distribution that began in October 2025. To have filed a claim, merchants needed to document their interchange fees paid between January 1, 2004 and January 25, 2019. This required either credit card processing statements showing interchange charges or merchant bank statements showing the fees deducted.
For the revised settlement still pending court approval, merchants may have a second opportunity if Judge Cogan approves the proposal. The revised terms do not require new claims filing in the traditional sense; instead, the rate reductions and caps would apply automatically to all merchants processing Visa and Mastercard transactions. However, merchants seeking to decline certain cards or implement surcharges must actively choose to do so—the settlement doesn’t automatically opt merchants in. Large merchants with dedicated payment operations teams will likely maximize the benefits by selecting which cards to accept and calculating optimal surcharges. Smaller merchants may not have the infrastructure to manage these decisions and may miss out on the full benefit.
What Are the Limitations of the Settlement and What Merchants Should Know?
The original settlement imposed a significant limitation: the $5.54 billion is a one-time payment, not ongoing relief. Once distributed, merchants receive their share and there is no further recovery. If interchange fees rise again in 2026 and beyond, merchants have no recourse under this settlement. Additionally, the settlement excluded certain merchant categories, such as government agencies and nonprofit institutions, limiting who could claim. The distribution process itself has proven problematic—merchants with incomplete records struggle to prove their transaction volumes, and disputes over claims have delayed payments for many small business owners.
The revised settlement has an even greater limitation: the relief expires. The 10 basis point rate reduction ends after 5 years, and the 1.25% cap on standard consumer cards expires after 8 years. After those periods, Visa and Mastercard can raise rates again without legal constraint. A merchant relying on these cost reductions for five years to improve margins would need a backup plan for when rates increase. Furthermore, the ability to decline cards or add surcharges only helps merchants if they are willing to risk customer friction. Some research suggests that surcharges reduce card usage by 3% to 8% at the point of sale, creating a hidden cost that the settlement does not address.
What Happens if Judge Cogan Approves the Revised Settlement?
If the revised settlement receives final court approval, the rate reductions and card acceptance changes would take effect, likely phased in over 2026-2027. The 10 basis point reduction would apply immediately to most card transactions, reducing fees from an average of 185-225 basis points down to 175-215 basis points depending on card type. For a merchant processing $50 million in annual Visa and Mastercard volume, this represents approximately $50,000 to $100,000 in annual savings. The 1.25% cap on standard consumer cards would prevent the most aggressive rate escalations that Visa and Mastercard have imposed on merchants in recent years.
However, approval is not certain. Merchant opposition and Judge Cogan’s skepticism expressed during April 2026 hearings suggest he may demand additional concessions before approving the revised settlement. The court could reject the proposal, impose modifications, or require further negotiations. A rejection would leave merchants with only the original $5.54 billion settlement, which many view as insufficient compensation for 15+ years of price fixing.
Where Does the Litigation Stand Now and What’s the Outlook?
As of mid-2026, the payment card interchange settlement remains in flux. The original settlement is distributing funds from the $5.54 billion fund, though slowly. The revised settlement proposed by Visa and Mastercard awaits final approval from Judge Cogan, and that decision could come any month. Meanwhile, merchants continue to operate under the current interchange structure while awaiting clarity on whether the revised terms will take effect. Some merchant groups have signaled they may appeal any approval decision, potentially extending litigation another 1-3 years.
Looking ahead, the broader regulatory environment is shifting. The Federal Reserve has authority to cap interchange fees for debit cards but not credit cards, and congressional proposals to limit credit card interchange have resurged in recent years. Whether Congress acts independently or the court-approved settlement becomes the final resolution remains uncertain. For merchants, the takeaway is clear: after decades of fighting Visa and Mastercard in court, they have finally achieved some measurable leverage, but that leverage is limited in scope and duration. The litigation has not yet ended, and merchants should monitor court filings for updates on the revised settlement decision.
Conclusion
The Visa Mastercard interchange class action settlement, valued at $5.54 billion, represents a historic acknowledgment that merchants were overcharged for card processing fees due to anticompetitive practices spanning from 2004 through 2019. The original settlement was approved in 2019, upheld on appeal in 2023, and partial distributions began in October 2025. However, because the claims deadline of February 4, 2025 has now passed, merchants who did not file claims by that date cannot recover under the original settlement terms. The litigation is not over.
A revised settlement proposal from 2026 would provide deeper structural relief, including rate reductions, interchange caps, and new merchant rights to decline certain cards. This revised settlement faces merchant opposition and awaited final court approval as of mid-2026. For merchants, the settlement represents a rare victory but one with significant limitations: the original payment is one-time only, the revised rate reductions are temporary, and many smaller merchants lack the infrastructure to maximize benefits. Merchants should monitor the legal status of the revised settlement and consult legal counsel or their payment processor to understand how any changes will affect their operations.