Visa and Mastercard have reached revised settlements with merchants in an antitrust case over “swipe” (interchange) fees that has been ongoing for nearly 20 years.
The proposed deal could allow some merchants to refuse to process certain Visa and Mastercard products, or even add surcharges when you choose to pay with them at checkout.
Here’s what you need to know about this new development and the impact it will have on earning credit card rewards in the future.
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What is the Visa and Mastercard agreement? What changes might occur?
Currently, in the United States, every time a customer uses a credit card, a merchant (such as a store owner) pays an interchange fee to the card-issuing bank to facilitate processing of the card payment. These fees typically average around 2% of each transaction and are shared between banks and payment networks (such as Visa or Mastercard) to cover processing and fraud prevention costs.
Card issuers often use a portion of the fees they collect to fund your favorite rewards programs.
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Fees set by the card-issuing bank may vary depending on the type of credit card used, with higher fees for premium cards. These cards can offer you higher rewards, such as earning more than 1 point or mile for every $1 spent.
There has long been a “respect all cards” rule in place to prevent merchants from refusing to accept premium cards that charge higher interchange fees. The rule requires that if a merchant accepts one type of Visa or Mastercard, it must accept all types, regardless of the interchange fee. This is good for consumers because they can choose whichever card they want (such as the card with the most rewards) wherever they see the Visa or Mastercard symbol.
If approved by a federal court, the new settlement between Visa and Mastercard would lower average credit card interchange fees by about 0.1 percentage point over five years and cap “standard” consumer card interest rates at 1.25% for eight years. This means card issuers can charge lower interchange fees to fund rewards programs.
Perhaps more importantly for consumers, the settlement will amend the “respect all cards” rules, whereby merchants may have the ability to choose to only accept certain Visa and Mastercard products based on the interchange fees they must pay. In other words, they may choose not to accept premium cards such as Visa Infinite and World Elite Mastercard.
In addition, they can choose to add a surcharge of up to 3% (subject to state law and network rules) to cover the cost of processing a premium credit card, which will be added to the amount due by the consumer.
American Express cards are not affected by this message.
Is this any different than credit card competition law?
Yes. The Credit Card Competition Act is a separate piece of proposed legislation that would require major card issuers to enable at least two independent networks on most credit cards (a “dual-routing” mandate), allowing merchants to conduct transactions through networks other than Visa or Mastercard.
By contrast, the settlement is a private legal agreement covering fees, card category acceptance and surcharges within the Visa and Mastercard networks; it does not involve Congress.
If passed, the CCCA could reduce the ability of card issuers to offer generous rewards, possibly more so than a court settlement.
RELATED: Consumer Alert: Senators try to slip anti-points and miles legislation into pending bill
What does this mean for my rewards credit card?
We don’t know yet. However, there are no immediate changes.
If the court approves this settlement, you may occasionally see a checkout message indicating that a specific premium Visa or MasterCard card is not accepted or that using it will incur additional fees, which, especially for small businesses with razor-thin margins, may cause you to rethink your credit card strategy in the future.
Merchants (like your local cafe owner) will be responsible for choosing which cards they accept and which surcharges they charge, because if a merchant suddenly decides to stop accepting your preferred rewards credit card, you can always take your business elsewhere.
It is currently impossible to predict whether this behavior will become widespread or remain limited to certain sectors.
What’s the timetable?
Nothing changes at the cash register or your favorite rewards credit card or loyalty program. This is a proposed settlement that requires judicial review and approval; even then, implementation will likely take months (or possibly longer) before any new acceptance or pricing rules are implemented where you use your credit card.
bottom line
If the settlement is approved, some stores may refuse to accept premium Visa and Mastercard products (usually those that earn you the most rewards) or add additional processing surcharges.
American Express is not part of this potential change and is not expected to change in the near term or this year. TPG will continue to monitor court proceedings and keep you updated on developments.
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