Visa and MasterCard Settlement Proposal
Visa and MasterCard are proposing a settlement in a legal battle that has persisted for nearly two decades with merchants and retailers regarding the fees they charge for card acceptance.
This settlement could significantly affect how customers use their Visa and Mastercard credit cards and might even lead to some consumers being denied purchases at physical stores.
A lawsuit involving a class action group representing merchants has been ongoing for about 20 years. Last year, a judge dismissed the case, compelling Visa and MasterCard’s legal teams to revisit the settlement’s details.
The recently announced part of the settlement deals with the “honor every card” rule, a principle that underpins the operation of credit and debit cards in the U.S.
This “Respect All Cards” rule mandates that if a merchant accepts Visa or Mastercard, they must accept all variations of those brands, regardless of the costs incurred by the issuer or the merchant.
This requirement has caused considerable confusion among retailers over the years, especially with high-benefit credit cards like the Chase Sapphire Reserve and Citi Strata Elite, which utilize premium versions of Visa and Mastercard. The Sapphire Reserve employs the Visa Infinite card, while the Strata Elite is issued as a World Elite Mastercard. These higher-end cards have gained popularity in recent years.
Accepting Visa Infinite and World Elite Mastercard incurs higher fees for merchants, with costs varying based on factors like size and industry. For example, merchants might find that accepting a Visa Infinite card could cost them up to 0.15% more compared to a mid-tier Visa Signature card.
Under the proposed settlement, merchants could have the ability to differentiate among Visa and Mastercard tiers. This means shoppers using high-reward credit cards might be turned away at checkout if merchants decide not to accept certain high-tier options. Additionally, merchants could potentially pass the higher costs associated with loyalty cards onto customers through surcharges on their bills.
This situation would force retailers to make tough choices: either accept all cards with high fees or refuse some, likely frustrating affluent consumers who value earning rewards on their everyday spending.
Similar to a prior settlement last year, merchants would see a temporary reduction in swipe fees for several years. Specifically, swipe fees would drop by 10 basis points for five years, and standard credit card transactions would be processed at 1.25% of the total purchase price for the next eight years.
The future of this settlement remains uncertain, as major retail lobby groups expressed their opposition following its announcement. Retailers and lobbyists have pushed Congress to regulate interchange fees in a manner similar to debit card fees, claiming that the settlement fails to address their concerns adequately.
“This proposal is just a cosmetic change. Reducing swipe fees hasn’t gone far enough, and modifying the Honor All Cards rule won’t solve the actual problem. If the courts aren’t able to resolve this, it’s time for Congress to step in,” stated Stephanie Maltz, chief administrative officer and general counsel for the National Retail Federation.
Payment networks, acknowledging two decades of litigation, believe this proposal could be the most effective way for merchants to avoid a prolonged court battle.
“We see this as the best resolution for all parties involved, providing the clarity, flexibility, and consumer protections needed in this matter,” a spokesperson from Mastercard said.
It’s worth noting that this agreement concerns only Visa and Mastercard; American Express operates within a closed-loop system and is not part of the ongoing disputes. The settlement also does not influence debit cards.
