The Wall Street Journal reports that Visa and Mastercard “are nearing a settlement with merchants that aims to end a 20-year-old legal dispute by lowering fees stores pay and giving them more power to reject certain credit cards, according to people familiar with the matter.
“Under terms being discussed, Visa and Mastercard would lower credit-card interchange fees, which are often between 2% and 2.5%, by an average of around 0.1 percentage point over several years, the people said. They would also loosen rules that require merchants that accept one of a network’s credit cards to accept all of them.”
The Journal writes that an agreement – which would have to be approved the courts – would mean that “consumers could see big changes at the register. Merchants that accept one kind of Visa credit card wouldn’t have to accept all Visa credit cards, for example. Under the current talks, credit-card acceptance would be divided into several categories including rewards credit cards, credit cards with no rewards programs, and commercial cards, the people familiar with the matter said. Some stores might turn away rewards cards, which charge them higher fees and in recent years have become very popular with consumers. But stores that reject those cards would face the risk of declining sales.”
Some context from the Journal story:
“The case dates back to 2005, when merchants sued Visa, Mastercard and large banks, alleging that they engage in anticompetitive behavior with interchange fees and acceptance terms.
“In March 2024, the two sides reached a deal to lower interchange fees by around 0.07 percentage point on average over five years. The agreement would have created a little more flexibility for merchants that want to charge consumers extra when they pay by credit card, a practice known as surcharging. The judge overseeing the case rejected the deal. The new settlement being discussed also would involve surcharging, the people said.”
And:
“Any settlement on credit-card fees and acceptance rules is unlikely to affect litigation that large merchants are pursuing against the networks and large credit-card issuing banks. In these cases, some of which are set to go to trial next year, big merchants are seeking monetary damages tied to interchange fees and acceptance rules.”
The National Retail Federation (NRF) issued a statement saying that the proposed settlement should be rejected:
“This is the third attempt to settle this case and the card industry either just doesn’t get it or just doesn’t care,” NRF Chief Administrative Officer and General Counsel Stephanie Martz said. “Once again, this proposal is all window dressing and no substance. The reduction in swipe fees doesn’t begin to go far enough, and the change in the honor-all-cards rule would accomplish nothing. If the courts can’t fix this, it’s time for Congress to take action.”
Martz also said “the reduction is inadequate because it is a small fraction of the 2.35% average swipe fee charged to merchants in 2024 and equivalent to rolling back fees by only about one year — swipe fees averaged 2.26% in 2023. Swipe fee rates have grown by three times as much since 2010, when they averaged 2.02%.”
KC’s View:
It is crazy how long this litigation has been going on, and I’m sure that all sides would like to see this thing resolved so they can get it off their plates. (Well, maybe not the lawyers, who probably see this litigation as a financial annuity.)
I totally get why retailers have spent so much time and effort trying to gain control of a fee situation that has been totally beyond their control for so long. And anything that takes banks and credit card companies down a peg or two is okay in my book. But let’s go beyond the NRF dissent.
I think it is important to think about the settlement from the shopper’s point of view. If I walk into a store to make a purchase, and it ends up they it won’t take the particular kind of credit card that I want to use, it is going to create bad feelings and potentially some public disputes – none of which will be good for retailers or customers.
It won’t be a good look, and I have to wonder if it will create more problems than it will solve. But I’m happy to be disabused of this notion.
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