After a decades-long legal battle with merchants, Visa and Mastercard have agreed to settle an antitrust class-action lawsuit over credit card swipe fees, a move that could potentially benefit consumers.
If the deal is finalized and approved by the US District Court for the Eastern District of New York, Visa and Mastercard will reduce swipe rates — also known as interchange rates — by four basis points for three years with no increases in the rates for at least five years.
Swipe fees are what credit card networks charge merchants when customers use their credit or debit cards. Visa and Mastercard, which dominate the credit card processing network, retain some of that cut for themselves as a network fee that is passed on to consumers in the form of higher prices for gas, groceries and more, according to Sen. Dick Durbin (D-IL), who has introduced legislation seeking to curb the practice by increasing competition in the credit card network market.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Durbin is among those who say that the settlement does not go far enough, however.
“At a time when hard-working Americans and small business owners are struggling with higher costs of everyday essentials like gas and groceries, reducing the cost of swipe fees should be welcome news,” Durbin said regarding the settlement. “However, I fear that this deal only provides temporary concessions negotiated by a few lawyers behind closed doors."
Trade group Retail Industry Leaders Association in a statement called the settlement "a mere drop in the bucket.” The settlement "proves that merchants deserve injunctive relief, but whether the settlement terms proposed are sufficient to remedy the harm caused by the current interchange system needs to be carefully reviewed,” it added.
The Electronic Payments Coalition (EPC), whose members include credit unions, community banks and institutions, celebrated the settlement agreement.
But EPC took aim at Durbin's Credit Card Competition Act, legislation that would direct the Federal Reserve to ensure that the largest credit card-issuing banks offer a choice of at least two networks over which an electronic credit transaction may be processed. The bill, according to the senator, would save merchants and consumers about $15 billion annually.
EPC said the bill is unnecessary. “Ultimately, [Visa and Mastercard's] agreement helps small businesses more than a haphazard, experimental piece of legislation that only benefits the largest corporate mega-stores ever would,” EPC Executive Chairman Richard Hunt said in a statement.
Bringing closure
Rob Beard, chief legal officer and head of global policy at Mastercard, said in a statement that the agreement "brings closure to a long-standing dispute by delivering substantial certainty and value to business owners, including flexibility in how they manage acceptance of card programs.”
Merchants are expected to save $30 billion during the next five years as a result of the settlement. They are also expected to have more freedom to impose surcharges on cards that require a more expensive swipe fee. Visa estimates that 90% of the merchants in the class action are small businesses.
Other swipe fee action
Others seeking to rein in swipe fees include the Federal Reserve, which last October proposed to lower the maximum swipe fee that large debit card issuers can charge merchants. The fee would drop from 21 cents to 14.4 cents plus 0.04% of the transaction amount, under the plan.
In January, the Fed extended the public comment period on the proposal to May 12.
In August, New Jersey capped the number of credit card swipe fees that merchants could require their customers to pay.
The state does not go as far as Connecticut and Massachusettes, neither of which allow businesses to pass swipe fee surcharges onto customers.
RELATED CONTENT
-
Cord Cutting Could Help You Save Over $10,000 in 10 YearsHow cutting the cord can save you money and how those savings can grow over time.
-
The '8-Year Rule of Social Security' — A Retirement RuleThe '8-Year Rule of Social Security' holds that it's best to be like Ike — Eisenhower, that is. The five-star General knew a thing or two about good timing.
-
Cord Cutting Could Help You Save Over $10,000 in 10 Years
How cutting the cord can save you money and how those savings can grow over time.
-
The Top Fourth of July Fireworks and Celebrations Across AmericaFrom Boston to San Diego, these iconic celebrations light up the sky — and the spirit of Independence Day.
-
Why Retirees Need a Budget, According to a New RetireeA new retiree explains why retirees need a budget.
-
My First $1 Million: Air Force Veteran, 68, Duluth, Ga.Ever wonder how someone who's made a million dollars or more did it? Kiplinger's My First $1 Million series uncovers the answers.
-
Your Home + Your IRA = Your Long-Term Care SolutionIf you're worried that long-term care costs will drain your retirement savings, consider a personalized retirement plan that could solve your problem.
-
How to Choose a Mortgage Lender in Five StepsNot all lenders are created equal — here’s how to compare offers, rates and terms with confidence.
-
A Meteorite May Have Hit a Home in Georgia. Would Insurance Cover the Damage?In a rare event, a meteorite may have crashed through the roof of a Georgia homeowner. Here’s what home insurance would cover.
-
My Car Was Stolen — Here’s What I Did and How You Can Protect YourselfDon’t wait until it happens to you. Learn how to prepare for auto theft, protect your vehicle and respond quickly if your car is stolen.
