A Thing
The Green SheetGreen Sheet

Tuesday, March 26, 2024

Long-running legal battle over interchange settled, maybe

Visa and Mastercard agreed to settle a long-running legal battle with retailers. Under the settlement, announced today, March 26, 2024, the card brands will put the brakes on interchange hikes for four years, eliminate their anti-steering rules, and simplify rules pertaining to surcharging and cash discounting, according to press releases issued today by the card brands and attorneys representing retailers.

"This agreement brings closure to a long-standing dispute by delivering substantial certainty and value to business owners, including flexibility in how they manage acceptance of card programs," said Bob Beard, general counsel at Mastercard.

"By negotiating directly with merchants, we have reached a settlement with meaningful concessions that address true pain points small businesses have identified," added Kim Lawrence, Visa president for North America. "Importantly, we are making these concessions while also maintaining the safety, security, innovation, protections, rewards and access to credit that are so important to millions of Americans and to our economy,"

Approval pending

The agreement, years in the making, still must be approved by a federal district court in New York. It stems from a lawsuit originally filed in 2005 in which merchants alleged the card companies and card-issuing banks colluded to keep interchange fees inflated and engaged in other anti-competitive practices.

Visa, Mastercard and the banks already settled a portion of lawsuit in 2018, resulting in payouts of about $6 billion to merchants, effectively rebates on past interchange payments. The settlement heralded today was focused on the remaining allegations.

"This settlement is the culmination of eight years of hard-fought litigation and detailed, painstaking negotiations," said Steve Shadowen, an attorney representing merchants.

It "achieves our goal of eliminating anti-competitive restraints and providing immediate and meaningful savings to all U.S. merchants, small and large," added Robert Eisler, another attorney representing the merchants.

Eisler and his co-counsels estimated the settlement will result in nearly $30 billion in savings to merchants over five years. "Experts expect substantially greater additional savings as the agreed upon policy changes provide merchants of all sizes with new negotiating leverage against Visa and Mastercard," the attorneys explained in a press release.

They added that the current settlement "represents a major improvement" over an earlier settlement that was overturned in 2016 by the U.S. Court of Appeals for the Second Circuit.

Merchants want more

"This settlement is a bad deal for merchants," said Christopher Jones, senior vice president at the National Grocers Association, in a statement issued by the Merchants Payments Coalition.

Stephanie Martz, general counsel at the National Retail Federation, said while NRF is still reviewing the particulars of the agreement, "we have some very real concerns." The planned reduction in interchange, following years of increases, "amounts to pennies on the dollar," she said. "The fact remains that these fees are an unfair business practice that harms merchants and consumers, and benefits banks."

Martz added that the NRF remains committed to seeking passage of the Credit Card Competition Act, legislation introduced by Senator Dick Durbin, D-Ill. The bill would mandate that merchants be allowed to choose over which networks their card payments get processed and that only one of the choices offered can be owned by Visa or Mastercard.

An industry expert weighs in

We asked Frank Pagano, co-founder and managing partner at VizyPay, how aware his company's merchant partners are of this settlement and how they anticipate it might affect them. "Many merchants aren’t familiar with this deal, but it would be beneficial for them to know," he said. "Per the agreement, the average reduction in swipe fees is 4bps, which is equivalent to about $4 per $10,000 in processing volume. While this is an improvement, it will only majorly affect big businesses and not impact the day-to-day of small businesses, especially in rural America."

When asked whether Merchants Payments Coalition and National Retail Federation, which voiced opposition to the agreement, have a point, Pagano replied, "This is not a bad deal for merchants, although it won’t represent meaningful savings for their businesses. Essentially, it still keeps fees locked in at a level lower than it is today.

"Visa and Mastercard are for-profit businesses, and their products and services are vital to commerce throughout the world. Similar to other businesses, they have costs and needs to ensure their profitability. When it comes to a point when the price of a service is more than the value of it, that’s when we will see disruption. As for now, we will see what the future holds with the different innovative fintechs." end of article

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

2024 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
A Thing