Visa, Mastercard's Swipe Fee Settlement Might Save You Money, For Now
The limited-time agreement directly benefits merchants, which can potentially pass savings on to consumers.
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
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Keerthi Vedantam is a reporter covering finance, tech and science. She previously covered biotech and health at Crunchbase News and enterprise technology at Business Insider.
-
Setting Objective Criteria for Employee Bonuses Aligned With Company Goals
When employees win, the company wins.
By Stephen Nalley Published
-
A Modern Guide to Money Etiquette: Gifts, Tips, Splitting Bills and More
What is modern money etiquette? The customs for splitting a restaurant check, purchasing a wedding gift, tipping and more have evolved. These guidelines can help.
By Emma Patch Published
-
A Modern Guide to Money Etiquette: Gifts, Tips, Splitting Bills and More
What is modern money etiquette? The customs for splitting a restaurant check, purchasing a wedding gift, tipping and more have evolved. These guidelines can help.
By Emma Patch Published
-
How to Navigate Finances as a Blended Family
If you’re planning to become part of a blended family, consider these financial issues as you and your spouse start a new life.
By Ella Vincent Published
-
When It Comes to Insurance, How Much Risk Can You Take?
Either you or an insurance company takes on the risk of protecting your belongings from loss or damage. Can you afford to self-insure?
By Karl Susman, CPCU, LUTCF, CIC, CSFP, CFS, CPIA, AAI-M, PLCS Published
-
Is Harris’s $25k Down Payment Assistance Good or Bad for Homebuyers?
Democratic Presidential candidate Kamala Harris plans to offer $25,000 in down payment assistance for first-time homebuyers. But is this good or bad for the housing market?
By Erin Bendig Published
-
Women's Wealth Growing: How to Handle It Like a Pro
Even as women play catch-up because of the gender pay gap and caregiving responsibilities, they're winning financially.
By Tiffany Welka Published
-
How to Spot a Contractor Who's Not Playing by the Rules
Being a general contractor is not a game, yet some misrepresent what they're licensed to do. Here's a cautionary tale, plus some signs to watch for that something's off.
By H. Dennis Beaver, Esq. Published
-
How to Rank Your Financial Priorities
Circumstances are different for everyone, but this adviser with 20-plus years of experience shares some insights on getting your financial priorities in order.
By Andrew Rosen, CFP®, CEP Published
-
Where To Put Your Money As Interest Rates Drop
Earning 5% returns on your money is slowly coming to an end. Even so, there are places to put your money that still make sense.
By Kathryn Pomroy Published