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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free 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
-
Dow Dives 797 Points as Government Opens: Stock Market TodayThe process of pricing and re-pricing realities old and new never stops, and next week promises to be at least as exciting as this week.
-
3 Ways High-Income Earners Can Maximize Their Charitable Donations in 2025Tax Deductions New charitable giving tax rules will soon lower your deduction for donations to charity — here’s what you should do now.
-
Protect Your Family From Costly Festive Fails With These Holiday TipsHaving people over this holiday season? Before opening the door to guests, here are some perils to prepare for in advance.
-
What's Next for the Fed — as an Institution?The U.S. central bank was already contending with economic challenges. Now comes a political one.
-
When an Extended Car Warranty is Worth It — and When it's NotGot the "we're trying to reach you about your car's extended warranty" call? Here's what you need to know before buying.
-
No-Penalty CD or High-Yield Savings? What Works Best NowDiscover which option can help you reach your savings goals quickly.
-
Seven Practical Steps to Kick Off Your 2026 Financial PlanningIt's time to stop chasing net worth and start chasing real worth. Here's how to craft a plan that supports your well-being today and in the future.
-
Are You Saving Too Much for Retirement? Know These Surprising DownsidesYour money may be better served outside of a retirement account.
-
Dental Cost Advice for New Retirees, From a New RetireeWhat I faced in my first dental bill after retiring.
-
Fish and Chips? More Like Fish and a Side of Customer Confusion and AngerYou expect chips — French fries, actually — to come with your order of fish and chips? Think again. This restaurant could be violating the truth-in-menu laws.
