Visa, Mastercard, merchants reach settlement in interchange lawsuit Posted by AVCU on 1:25 PM

Visa and Mastercard announced a major settlement with U.S. merchants on Tuesday, potentially ending nearly two decades of litigation over the fees charged every time a credit or debit card is used in a store or restaurant.

The deal would lower and cap the fees charged by Visa and Mastercard and allow small businesses to collectively bargain for rates with the payment processors in a similar way that the large merchants do on their own now.

Industry groups for retailers both small and large said the settlement is a positive development, but far more needs to be done to remedy the current swipe-fee situation. They noted that the lowered fees would be only for a limited period of time — three to five years — after which the fees would return to their current levels.

"While this settlement is a step in the right direction and will provide a limited amount of short-term relief to small businesses, it does not solve the long-term anti-competitive rate-setting practices that are the root of this problem," said Jeff Brabant, vice president of federal government relations at the National Federation of Independent Business, a small-business advocacy group. "As long as the credit card networks, Visa and Mastercard, get to set the interchange rates for every bank that issues a credit card, anti-competitive pricing will remain, and small businesses will continue to pay artificially high rates."

Swipe fees are paid to Visa, Mastercard and other credit card companies in exchange for enabling transactions. Merchants ultimately pass on those fees to consumers who use credit or debit cards. The fees are calculated as a fixed fee plus a percentage of the sales total, typically about 1% to 3%.

Increasingly, small businesses have begun posting signs near the register warning customers that they will pay more for the same item if they do not use cash.

According to the settlement announced Tuesday, Visa and Mastercard will cap the credit interchange fees until 2030, and the companies must negotiate the fees with merchant-buying groups.

The law firm that announced the settlement put the value of the savings in swipe fees at close to $30 billion.

America’s Credit Unions is analyzing the settlement, but has concerns with several areas that could impact credit unions, including:  

• Merchants would be permitted to surcharge Visa or Mastercard branded credit cards up to 3%; 
• Visa and MasterCard would modify their “no-discounting” and “non-discrimination” rules to allow merchants to offer discounts to customers based on the credit or debit card issuer;  
• Modification of the “honor all cards” rules to indicate that a merchant may accept and enable some but not all digital wallets and steer consumers to specific cards within the digital wallet; and 
• Reduction in the interchange rate paid by merchants for the next five years.  

The settlement requires approval by the Eastern District Court of New York.