Visa and MasterCard Offer Settlement in Legal Dispute

NEW YORK — Visa and MasterCard have proposed a settlement aimed at resolving a prolonged legal conflict with merchants and retailers regarding the fees associated with card acceptance.

This settlement might significantly influence how customers use their Visa and MasterCard credit cards, and could even lead to some consumers being turned away when trying to make purchases in-store.

For nearly two decades, Visa and MasterCard have faced a class-action lawsuit from merchants concerning the charges they impose on businesses for utilizing their interchange payment network. A previous settlement attempt was rejected by the presiding judge earlier this year, compelling Visa and MasterCard’s legal teams to reassess the offer’s terms and extent.

Recently, a new component of the settlement was revealed which tackles the “honor every card” rule foundational to credit and debit card operations in the United States.

This “Respect All Cards” rule stipulates that if a merchant accepts Visa or MasterCard, they must accept every version of those cards, regardless of the cost implications for the issuer or the merchant.

This has generated confusion for merchants over the years, especially with high-reward credit cards such as the Chase Sapphire Reserve and Citi Strata Elite. The Sapphire Reserve, for instance, uses the Visa Infinite card, while the Strata Elite operates under the World Elite Mastercard. These premium cards have gained popularity recently.

Both Visa Infinite and World Elite Mastercard often come with higher acceptance costs for merchants. The additional fees depend on various factors, including the size and type of business, but, for example, Visa Infinite can incur an extra charge of 15 basis points (0.15%) compared to the mid-tier Visa Signature card.

If the proposed settlement goes through, merchants could differentiate between the different tiers of Visa and MasterCard products. This means that users of these high-reward credit cards could find themselves declined at checkout if merchants decide not to accept higher-tier cards. Additionally, merchants might have the option to pass on costs associated with accepting loyalty cards through surcharges on customer bills.

This situation leaves merchants with the dilemma of either accepting all high-fee cards or rejecting certain ones, which may frustrate affluent consumers who prefer earning points on their purchases.

Continuing along the lines of previous deals, this proposed settlement would offer temporary reductions in swipe fees for merchants over several years. Specifically, swipe fees would decrease by 10 basis points for five years, with standard credit card transactions processed at 1.25% for eight years.

However, it remains uncertain whether this settlement will ultimately be accepted, as major retail lobbying groups expressed their discontent following the announcement. These groups have long advocated for Congress to step in and regulate interchange fees, similar to those applied to debit cards. Business representatives argue that the proposed settlement does not go far enough to address the issue.

“This proposal lacks substance and only offers a superficial solution. Merely reducing swipe fees isn’t sufficient, and altering the Honor All Cards rule won’t yield meaningful changes. If the judicial system can’t rectify this, then Congress needs to intervene,” said Stephanie Maltz, chief administrative officer and general counsel for the National Retail Federation.

Payment networks, eager to put two decades of litigation behind them, argue this settlement might be the best avenue for merchants to avoid a protracted court battle.

“We believe this is the best solution for all parties involved and provides the needed clarity, flexibility, and consumer protections,” commented a Mastercard representative.

This settlement only involves Visa and MasterCard, while American Express operates its own closed-loop system, functioning as both the issuing bank and payment network, and is not affected by this litigation. Additionally, the settlement does not pertain to debit cards.