The Green Sheet Online Edition
May 5, 2026 • 26:05:02
Insider's report on payments
The litigious nature of interchange
Litigation over interchange continues, seemingly unabated. With merchant gripes taking years, in some cases decades, to play out in the courts, some are turning to the states for legislative relief. Lawmakers in at least 15 states are considering legislation that would ban the imposition of interchange on the tax and/or tip portions of transactions.
Proponents say the legislation aims to protect merchants from paying processing fees on money they don't keep. But the reality is that the savings would be minuscule at best.
Lack of common sense
The Common Sense Institute, a think tank that focuses on free-market economics, estimated the average business in Iowa would save just $220 a year if legislation pending in that state banning interchange on the tax portion of a ticket were to become law. But those savings likely would be wiped out by costs incurred for upgrading POS systems, as well as whatever portion processors and their partners pass on of infrastructure upgrades required for compliance.
While the pending legislation would generate $36.2 million in merchant savings statewide, the necessary POS system and infrastructure changes would cost $82 million, Common Sense estimated. For 42 percent of small merchants in Iowa, it could take a decade or longer for savings to offset the costs if the legislation became law, according to Common Sense.
The think tank further estimated that the legislation, if enacted, would carry a cost of $67 million in economic output and 350 jobs, statewide, in year-one alone. Logic would dictate that this is bad policy. But lawmakers pay attention to the constituencies that create the most waves, and merchants, in sheer numbers, outnumber FIs by orders of magnitude, which means they make waves that far outnumber and are far bigger than those made by FIs.
Lawmakers in Illinois passed legislation that would ban interchange on tax and tip amounts—legislation with an effective date of July 1, 2026. However, the Illinois Interchange Fee Prohibition Act is currently on hold, following a ruling by the Office of the Comptroller of the Currency that federal banking law preempts the law. (The OCC is the primary regulatory authority for large national banks, like Citi, JPMorgan Chase and Bank of America.)
The Illinois Bankers Association and two credit union trade associations successfully challenged a district court ruling that said the law should take effect as planned. The U.S. Circuit Court of Appeals on May 8 sent the case back to the lower court, ordering it to reconsider the case in light of the OCC's ruling. In a statement issued following the circuit court ruling, the trade group America's Credit Unions urged "the Illinois legislature to recognize that IFPA was a mistake and repeal this misguided law."
Mismatched priorities
The legal morass involving interchange can be attributed to a mismatch of priorities. But the reality is that the priorities of the financial institutions that issue Mastercard and Visa cards, as well as the card brands themselves, and the priorities of retailers are pretty closely aligned. All parties want consumers to buy stuff and to pay for it with their credit and debit cards. Where they diverge is on the value affixed to those priorities.
The FIs and card brands want (need) to be compensated for getting cards in consumers wallets, the rewards programs that accompany those cards to encourage usage, and the investments they've made in network infrastructure, fraud protections and security. Merchants, on the other hand, feel they should pay as little as possible for accepting cards.
Complexity also contributes to the problem. Interchange is just one component of the discount fee that merchants pay for accepting card payments. When merchants talk about "swipe fees," what they really mean are the discount fees.
According to a report from the Federal Reserve Bank of St. Louis, U.S. financial institutions collected $66 billion in interchange last year, up from $64 billion in 2024. The Merchants Payments Coalition, on the other hand, reported that merchants paid $198.25 billion in swipe fees in 2025, up from $187.2 billion in 2024. It's difficult to determine the accuracy of the MPC's data, but I suspect it's been amped up.
The merchant discount fee typically consists of:
- Interchange, which gets paid to the card-issuing bank, and is set by the card brands. Interchange can vary based on:
- Card type (for example, plain vanilla, rewards or corporate)
- Transaction method (for example, in person chip reader, keyed in, or online)
- Merchant category (for example, supermarket, restaurant, or fuel station)
- Network assessments, which are assessed by and paid to the card networks (Visa, Mastercard, American
- May also include a small percentage of the transaction amount
- Processor/Acquirer Markup. It covers:
- Authorization
- Settlement
- Customer support
- Fraud tools
- Profit Margin
- Other fees may also be included, such as monthly services, and PCI compliance fees
- Online merchants pay gateway fees, as well as tokenization/security fees
- Additional costs that can get factored into discount fees include charges related to chargebacks and other
Note: ISOs, merchant level salespeople and other merchant services providers may want to keep this list handy for discussions with clients, prospects or lawmakers about discount or swipe fees.
DOJ suit spawns 20-year case
The longest pending litigation brought against the card brands by merchants was filed in 2005. Merchants alleged that Visa and Mastercard, along with the major card-issuing banks, ran afoul of federal anti-trust laws by conspiring to fix interchange and imposing anti-competitive network rules, like honor all cards.
The Department of Justice opened the legal floodgates when in 1998 it brought an anti-trust suit against Visa and Mastercard.
Challenging rules that prohibited member banks from issuing cards from competing networks, like American Express and Discover. The DOJ also challenged the brand's duality rules that allowed banks to issue both Mastercard and Visa cards.
The resulting decision, handed down in 2001, was a mixed bag. The U.S. District Court for the Southern District of New York ruled that the exclusionary rules prohibiting Mastercard and Visa banks from issuing competing cards like AmEx and Discover were illegal and anticompetitive. However, the court ruled that the "duality" rule was legal and FIs could continue issuing Mastercard- and Visa-branded cards
Bumps in the road for merchants' case
An initial monetary settlement in the antitrust case brought by merchants against Visa and Mastercard in 2005 was reached in 2012, but was subsequently thrown out on appeal. A new monetary settlement was reached in 2019, and after four years of legal wrangling was upheld by the Second Circuit U.S. Court of Appeals in 2023. It was valued at $5.6 billion.
Separately, rules changes were put forth in a 2024 settlement agreement that would eliminate the brands' honor-all-cards rule, offer surcharging flexibility and lower interchange. Many of the nation's largest retailers opted out of the settlement to pursue their own cases, however, including Walmart, Target and Starbucks.
Meanwhile, three small New York businesses filed suit in April 2026 accusing the two card brands of price fixing, and they've taken issue with many of the rules addressed in the 2024 settlement, including surcharging. The complainants, two restaurants and a hair salon, argue that the 2019 settlement applied only to damages suffered through January 25, 2019. They're seeking class action status on behalf of all merchants that have accepted Visa and Mastercard since January 2019.
Debit cards not immune
Lawsuits against the card brands haven't been limited to credit cards. In 2024, the DOJ filed a new lawsuit against Visa alleging it operates an illegal monopoly over the U.S. debit card network and maintains its market dominance through restrictive agreements with merchants, FIs and financial technology firms. The case, still in the discovery phase, is expected to involve years of legal wrangling.
Meanwhile, dueling judgments were handed down last year by judges in Kentucky and North Dakota regarding the cap on debit interchange that the Federal Reserve was instructed to implement by the Durbin Amendment to the 2010 Dodd-Frank Act. A federal district court judge in Kentucky upheld the cap, asserting the Fed rightfully balanced competing interests in setting the cap, which stands at 21 cents plus 5 basis points, with a 1 cent adjustment for fraud prevention initiatives.
Linney's Pizza in Frankfort, Ky., argued that the costs the Fed considered when setting the cap were contrary to the instructions set forth in the Durbin Amendment. Not so, said the judge in that case.
Roughly 1,200 miles to the west, a U.S. district court judge in North Dakota ruled in 2021 that the Fed misunderstood instructions set forth in the Durbin Amendment, siding with a truck stop and convenience store that had challenged the Fed's cap-setting regulation. While Congress gives agencies "discretionary authority" for carrying out laws, they do not enjoy carte blanche authority, District Court Judge Daniel M. Traynor for the District of North Dakota ruled.
That case made it to the Supreme Court, which sent the case back to the North Dakota District Court, which struck down the Fed's 21 cent debit cap in 2025. As lawsuits, legislative battles and regulatory challenges continue, the interchange debate shows little sign of nearing a final resolution. 
Patti Murphy is senior editor at The Green Sheet, president of ProScribes Ink (www.proscribes.net) and self-described payments maven of the fourth estate. Her Today in Payments reports are a regular feature of the Merchant Sales Podcast.
Notice to readers: These are archived articles. Contact information, links and other details may be out of date. We regret any inconvenience.
