In case you didn’t know, Visa and Mastercard have been in a legal feud with U.S. merchants for about 20 years. Last month, the two giants proposed a new settlement — and it’s already facing legal hurdles and detractors voicing concerns. Let’s break it down.
What Is the Settlement About?
Merchants argue that Visa and Mastercard charge too much for interchange fees, or swipe fees as you might know them. The settlement calls for the two payment networks to lower these swipe fees, which typically hover between 2% and 2.5%.
Under the new proposal, Visa and Mastercard would lower swipe fees by an average of around 0.1 percentage point for several years and cap “standard” consumer card rates at 1.25% for eight years. But the proposal would also loosen rules that require merchants to accept all of a network’s credit cards.
What Does That Mean?
So there’s this “honor all cards” rule that merchants follow. It means no matter what card you choose to pay with at checkout, the merchant has to accept it — regardless of the swipe fees it has to pay. This benefits you, the consumer, because this means you can choose the card that earns the most rewards, which most likely comes with the highest swipe fees.
If this new proposal is approved by the federal court, merchants would potentially have the ability to pick and choose what cards from each network they accept. So if you have a premium credit card — like a Visa Infinite or World Elite Mastercard credit card — you could be turned away. This is because these premium credit cards are usually more expensive for merchants to accept.
Under this new proposal, credit cards would be divided into at least three categories: commercial cards, standard cards (no rewards) and premium cards (rewards-earning cards). If a merchant decides the swipe fees on a premium card are too high, it can refuse to accept the card. Which means you might not be able to use your high-end annual-fee card or even your flat-rate cash back card if the merchant is feeling particularly picky.
[Read: Best Credit Cards.]
Could This Proposal Pass?
In all likelihood, probably not. This battle has been going on for 20 years because no one can agree on anything. Both the National Retail Federation and the Merchants Payments Coalition issued statements saying the new proposal should be rejected.
“This is the third attempt to settle this case, and the card industry either just doesn’t get it or just doesn’t care,” Stephanie Martz, chief administrative officer and general counsel for the NRF, said in a news release. “The reduction in swipe fees doesn’t begin to go far enough, and the change in the honor-all-cards rule would accomplish nothing.”
“This (proposal) makes a mockery of Judge (Margo) Brodie’s admonition in her rejection of the previous settlement that any new settlement must deal with the ‘honor all cards’ rule,” Jennifer Hatcher, a Merchants Payments Coalition executive committee member and FMI — The Food Industry Association chief public policy officer, said in a statement. “It ignores the fact that 85% of cards issued today are rewards cards and that merchants have no choice but to accept them. Banks would likely also have the power to move cards into different categories, effectively forcing merchants to continue to take all cards and pay their high prices.”
On the other hand, Electronic Payments Coalition Executive Chairman Richard Hunt said in a statement, “Both sides worked in good faith to reach this new, comprehensive agreement. It provides businesses of all sizes with meaningful and significant concessions that give more flexibility and choice in card acceptance, greater ability to pass along card processing costs, a more than 25% reduction on standard credit cards, and capped interchange rates across the board.”
What Do Consumers Need to Do?
Right now, nothing. The settlement still needs to be approved by a judge, so there are no immediate changes to worry about. Plus, if this proposal goes through, it will take months to implement, and then the responsibility will fall on the merchants. What could change for you, though, dear consumer, is the type of credit card you apply for if it’s suddenly deemed “too premium.”
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Will the Visa-Mastercard Settlement Be Bad News for Your Premium Credit Card? originally appeared on usnews.com
