Page 19 - gs260701

Insights and Expertise

Merchant education
The honor-all-cards reform may The proposed settlement would also allocate $21 million
not be the solution it initially to fund merchant education on proper interpretation of
appears to be. the card brand rules and the benefits of surcharging and
cash discounting, among other things. The proposed set-
tlement would also provide special attention to merchants
in states where surcharging is limited or prohibited. Mer-
At worst, a merchant may have to decline a customer's chants should be on the lookout for optional training in
card at the POS after the customer has already swiped, the card brand rules.
leading to heavy friction at checkout.
Closing thoughts
Next, fear that similar businesses will continue to honor
all cards and absorb the associated interchange fee would To simplify, the proposed settlement is a mixed bag. Al-
also probably prevent merchants from dishonoring cards. though it does provide more flexibility to surcharge, other
Finally, the card brands have indicated they may create solutions are not as meaningful. If asked whether the set-
tiered interchange rates for similar types of merchants tlement is worth settling for, the author would state: Prob-
based on their card acceptance practices, meaning that ably not.
merchants that dishonored cards would pay more in in-
terchange than their counterparts that continued to accept Jessica Walsh is a contract attorney who focuses on electronic transac-
all cards. tions, including SaaS, merchant processing, agent/reseller, independent
sales organization, and other related agreements. She regularly drafts,
The honor-all-cards reform may not be the solution it ini- revises, and negotiates agreements tailored to her clients' operational
tially appears to be. As Judge Cogan aptly commented in and regulatory needs. She also advises clients on card brand rules and
his order, "[w]hether all merchants will avail themselves of state regulatory requirements related to differential pricing. Contact her
that relief [of the changes to the honor-all-cards rule] is to
be seen." Merchants looking for ways to reduce their mer- at jwalsh@attorneygl.com.
chant discount may want to consider dishonoring cards,
but only to the extent it does not reduce their business.
Modified discounting rules

The proposed settlement would also relax no-discounting
rules. Currently, merchants can discount at the product
level, but not the issuer level. It would allow merchants
to discount at the issuer level, meaning merchants could
offer incentives for customers to use a particular issuer's
cards.

However, given the number of issuers, it is unclear wheth-
er allowing merchants to discount at the issuer level is a
viable option. Merchants already offering discounts likely
will not see much more wiggle room in this area.
Rate rollbacks

Visa and Mastercard also proposed lowering the inter-
change rate and adding a cap based on an average inter-
change rate minus ten basis points. The proposed settle-
ment also caps interchange on standard consumer cards
at 125 basis points.
However, merchant groups like the National Retail Fed-
eration and the Retail Industry Leaders Association have
noted that a 10 basis point reduction would not provide
meaningful relief, and the cap on standard consumer
cards is not particularly material since standard consumer
cards make up a fraction of the credit cards in use today.
Thus, merchants likely will not see a noticeable difference
in this area.

19