Written by Sarah Lassner | Nerd Wallet
Visa and Mastercard reached settlements with U.S. merchants this week, but the deal, if approved, could have a trickle-down effect on consumers. The agreement lowers the credit card interchange fees merchants pay to process credit card transactions and maintains those lower rates for several years. It would also limit the additional fees that merchants can charge to customers paying by credit card.
The settlement is not related to the Credit Card Competition Act, a bipartisan law that seeks to introduce increased competition among credit card payment networks to lower interchange fees.
The settlement still requires federal court approval. If so, here’s how it could impact consumers.
What does reconciliation change?
Costs of doing business for sellers (and in some cases, shopping fees)
Under the terms of the settlement, Visa and Mastercard must reduce interchange fees by at least 4 basis points (or 0.04 percentage point) for at least three years. These fees cannot be increased beyond their 2023 level for five years, and the average interchange fee must be at least 7 basis points (or 0.07 points) lower than the current average interest rate. In other words, the level of interchange fees will be reduced for five years.
According to a statement from one of the law firms representing the merchants in the lawsuit, the lower interchange fees could save merchants $29.79 billion over the five years after the settlement is approved.
In theory, merchants could pass these savings on to consumers in the form of lower prices, or at least stable prices for several years. You can also reinvest the savings back into your business, such as by improving customer service. However, sellers are not required to do these things.
Select payment method
Other terms of the settlement include limits on credit card surcharges. A credit card surcharge is an additional fee that a customer may have to pay for using a credit card at checkout. Currently, Mastercard limits surcharges to no more than 4%, while Visa limits surcharges to 3%.
The new surcharge cap for Visa or Mastercard cards will be 1%, regardless of the surcharges merchants impose on cards from other payment networks such as American Express or Discover. If the seller does not accept cards of other payment networks, the surcharge will be limited to his 3%.
Merchants will be allowed to “induce” customers to pay in a certain way, such as by offering lower surcharges to encourage the use of cards with certain payment networks. This may influence your choice of payment method for your purchase based on the terms offered by the seller.
Those that do not change
Credit card access and benefits
Visa said the settlement does not affect consumers’ access to credit and does not affect credit card rewards programs.
“By negotiating directly with our merchants, we reached a settlement with meaningful concessions that address the real pain points identified by small businesses,” Kim Lawrence, Visa’s president of North America, said in a statement. “Importantly, we are making these concessions while preserving the safety, security, innovation, protection, rewards, and access to credit that are so important to millions of Americans and the American economy. That’s the thing.”
credit card competition law
Again, this settlement is separate from the proposed Credit Card Competition Act. The settlement is the result of litigation that began in 2005, and the CCCA was first introduced in 2022.
The Electronic Payments Coalition, which opposes the CCCA, said in a statement that the settlement eliminates the need for interchange fee laws.
“Arrangements between merchants, Visa, Mastercard and financial institutions have been in place for decades, and are driven by government mandates and consumer data security and benefits programs,” said EPC Executive Chairman Richard Hunt. “It treats businesses of all sizes equally without putting them at risk.”
CCCA’s backers, the Merchant Payments Coalition, counter that the temporary fee reductions will leave consumers and businesses burdened once the five-year period ends.
“A few years of very small relief and then business as usual is not a good outcome of 20 years of litigation,” said Christopher, a member of the Merchants Federation’s executive committee and senior vice president of government for the National Grocers Association. Jones said in a statement. Human relations and consultation. “This settlement does not actually make the market more competitive and charge fees, nor does it change the behavior of cartels that centrally fix fees and block competition. “We’re trying to provide some temporary relief and allow card companies to raise interest rates again.”
What’s next?
Nothing has been finalized yet. The settlement must first be approved by the United States District Court for the Eastern District of New York. The changes specified in the settlement are expected to take effect in late 2024 or early 2025, according to a statement from Mastercard.
NerdWallet details
Sara Rathner writes for NerdWallet. Email: srathner@nerdwallet.com. twitter: @Sarah Klatner.
