Battle lines drawn over proposed merchant settlement

The proposed settlement in the long-running battle between Visa, Mastercard and merchants, if approved, won't kick in until late 2026 at the earliest. This is according to public statements by executives of the two card networks. That offers plenty of time for foes to tank the proposal, and they are already lining up to do so.

Visa Chief Financial Officer Chris Suh, speaking at an investor conference last week, said the proposal is a good deal for merchants. "We're very pleased to have reached this proposed settlement, one that provides meaningful relief to merchants in the U.S., additional flexibility and options to control how they accept payments," Suh said.

He added that Visa expects the legal process to continue through the end of fiscal 2026, suggesting implementation would likely begin in fiscal year 2027. Visa's fiscal year 2026 ends Sept. 30, 2026.

The proposed agreement would reduce average effective interchange rates by 10-basis points for a period of five years, scrap the honor all cards rule, and provide more flexibility to impose surcharges (up to 3 percent).

But trade groups representing merchants immediately panned the proposal urging U.S. District Court Judge Margot Brodie, who has final say on the settlement, to reject the proposal.

Durbin gives thumbs down

Now Senator Dick Durbin, the Illinois Democrat behind the Credit Card Competition Act, is throwing his weight behind the naysayers.

In a statement released on Nov. 17, Sen. Durbin panned the proposed settlement, asserting that it provides only temporary concessions and gives Visa and Mastercard free rein to change the rules down the road.

"As Americans are trying to make ends meet, the biggest Wall Street banks, Visa and Mastercard are lining their pockets by charging outrageous swipe fees [interchange] on each credit card transaction," Sen. Durbin stated. "Reducing the cost of swipe fees and allowing merchants more choice in which cards they accept should be welcome news, however, I believe this settlement falls short."

Durbin also used the statement to plug his proposed Credit Card Competition Act, which he described as bipartisan, bicameral legislation that would "lower costs for small businesses and consumers. My bill would help reduce the swipe fees that are crushing small businesses and costing American families an extra $1,200 each year. That's the kind of help American consumers and Main Street merchants need."

The Credit Card Competition Act would direct the Federal Reserve to enact regulations that require the largest card-issuing banks to program their cards such that merchants would have the choice of at least two networks over which to process credit card transactions. Only one of those networks could be controlled by Visa or Mastercard, however. Similar legislation was introduced in the House by Representatives Lance Gooden, R-Texas, and Zoe Lofgren, D-Calif.

Small merchants won't benefit, FIs argue

Durbin asserted that if enacted the legislation would save merchants and consumers $17 billion a year.

Opponents dispute this, arguing that the primary beneficiaries would be mega-retailers, not Main Street merchants, and would disadvantage community banks.

In a joint letter to House and Senate leaders earlier this year, a group of financial institution trade groups called the legislation a "poison pill" that has not been properly vetted through proper legislative channels (namely, committee hearings and votes).

They cited research out of the University of Miami estimating that almost all of the savings from the legislation would accrue to retailers with $500 million or more in annual sales.

The letter also referenced a survey by the National Federation of Independent Businesses on small business problems and priorities in which credit card processing costs failed to rank among the top 20 list of concerns. "The legislation will do nothing to help small businesses – it will only entrench corporate megastores that already have a stranglehold on the retail market," the letter asserted.

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