Visa and Mastercard Proposal in Long-Running Merchant Dispute

Visa and Mastercard have suggested a settlement regarding a lengthy legal battle with merchants and retailers over the fees associated with card acceptance.

This settlement could have notable effects on how consumers use their credit cards, potentially even leading to some customers being unable to complete purchases in stores.

For nearly two decades, Visa and Mastercard have faced a class-action lawsuit from merchants concerning the costs they impose for using the Interchange payment network. Last year, a judge dismissed the case, prompting the legal teams for Visa and Mastercard to reassess the settlement’s terms.

A recently announced aspect of the settlement deals with the “honor every card” principle, which underpins credit and debit card operations in the U.S.

The “Respect All Cards” rule requires that if a merchant accepts Visa or Mastercard, it must also accept all variations of these cards, irrespective of differences in cost for the merchant.

This policy has led to confusion for many merchants over the years, especially with high-reward credit cards like the Chase Sapphire Reserve and Citi Strata Elite that come with premium offerings. For instance, Chase’s Sapphire Reserve utilizes the Visa Infinite card, whereas the Strata Elite is issued as a World Elite Mastercard. These premium cards have seen a surge in popularity recently.

Both Visa Infinite and World Elite Mastercard incur higher fees for merchants. The additional costs differ depending on the business size and type; for example, merchants may find that Visa Infinite payments are about 0.15% higher than mid-tier options like Visa Signature.

If the settlement is approved, merchants could have the ability to differentiate between various tiers of Visa and Mastercard products. Consequently, users with high-reward cards might find themselves turned away at checkout if merchants decide against accepting higher-tier cards. Merchants may also have the option to pass on increased fees for loyalty cards to customers through surcharges.

This development puts merchants in a position where they must choose between accepting all cards, including those that come with substantial fees, or excluding some, which is likely to upset affluent customers who appreciate earning rewards on everyday spending.

In a somewhat similar scenario to last year’s settlement, merchants would receive temporary reductions in swipe fees for a few years, with a decrease of 10 basis points for five years. Additionally, standard credit card transactions would be processed at 1.25% for eight years.

It remains uncertain whether the settlement will be finalized, as major retail lobbyists expressed their opposition upon its announcement. Retailers have consistently called for Congress to regulate interchange fees, much like debit card fees. Business groups argue that the proposed changes don’t go far enough.

“This proposal is all window dressing and no substance. Reducing swipe fees hasn’t gone far enough, and changing the Honor All Cards rule won’t accomplish anything. If the courts can’t fix this problem, it’s time for Congress to act,” stated Stephanie Maltz, chief administrative officer and general counsel for the National Retail Federation.

Payment networks, ready to move past two decades of litigation, claim this settlement could be the best path for merchants to avoid a prolonged legal battle. “We believe this is the best solution for all parties and provides the clarity, flexibility, and consumer protections needed in this effort,” a Mastercard representative remarked.

It’s important to note that the settlement only involves Visa and Mastercard, as American Express functions under a closed-loop system and is not part of the ongoing litigation. Furthermore, this settlement does not extend to debit cards.