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
-
Stock Market Today: Stocks Rally Despite Rising Geopolitical TensionThe main indexes were mixed on Tuesday but closed well off their lows after an early flight to safety.
-
What's at Stake for Alphabet as DOJ Eyes Google's ChromeAlphabet is higher Tuesday even as antitrust officials at the DOJ support forcing Google to sell its popular web browser. Here's what you need to know.
-
Six Ways to Optimize Your Charitable Giving Before Year-EndAs 2024 winds down, right now is the time to look at how you plan to handle your charitable giving. The sooner you start, the more tax-efficient you can be.
-
Structured Settlement Annuity vs Lump-Sum Payout: Which Is Better?As the use of structured settlement annuities grows, it can be tough to decide whether to take the lump sum to invest or opt instead for guaranteed payments.
-
What to Do as Soon as Your Divorce Is FinalDon't delay — getting these tasks accomplished as soon as possible can help you avoid costly consequences.
-
How to Fight Inflation's Hidden Threat to Your SavingsIf higher prices are putting your savings goals on hold, you're in danger of financial erosion. Fortunately, several strategies can help stop the spread.
-
Seven Luxury Places to See the Northern Lights This WinterThe northern lights will be at their most captivating this winter. Fancy making them even more magical? From hotels on ice to glass cabins and mountain yurts, here are seven places to see the northern lights with luxury winter stays.
-
Does a Farm Need a Different Homeowners Insurance Policy?Homeowners insurance is all about providing the right tool for the right exposure, and life on the farm comes with different risks than life in the city.
-
How One Caregiver Is Navigating a Loved One's DementiaShe's spent many hours doing research and speaking with other caregivers to find her way to resources designed to help caregivers.
-
October CPI Report Hits the Mark: What the Experts Are Saying About InflationCPI While the current pace of rising prices appears to have leveled off, the expected path of rate cuts has become less certain.
