The Green Sheet Online Edition
June 8, 2026 • 26:06:01
The litigation continues: Why the card brands' interchange battle never ends
On April 21, 2026, three merchants filed a class-action lawsuit against Mastercard and Visa in New York District Court, seeking to get a slice of the interchange settlement pie. The plaintiffs challenge a portion of the 2019 interchange settlement called the Future Release.
The Future Release settled class merchants’ damages claims for a hefty $5.6 billion but secured a release of all future claims related to the class for at least five years from the date appeals from the settlement became final.
The plaintiffs claim that this settlement was inadequate because it did not properly address the claims of merchants who had not accepted credit cards for the entire 15-year litigation. Through the lawsuit, the merchant plaintiffs seek a declaration that the Future Release is invalid, along with damages for past and future injuries, including treble damages.
Litigation against the card brands has been going strong for decades because of the card brands’ broad and restrictive rules, as well as their immutable fee structure. The fee structure debate can be boiled down to one word: interchange. Otherwise, merchants take issue with the portion of the card brand rules that industry observers refer to as “merchant restrictions.”
What is the interchange fee?
The interchange fee is a set rate a merchant must pay to accept card transactions. Default interchange rates are set by the card brands twice a year, and all issuing banks charge the interchange fee for each transaction a merchant processes. The interchange fee is one of the several fees that make up the merchant discount rate, which is the amount that a merchant pays to accept any particular card transaction. For credit card transactions, interchange fees are usually the largest part of the merchant discount (some say they are one of a merchant’s largest expenses overall) and merchants are not happy about this.
Merchants claim (and many industry observers agree) that the interchange rate is set collectively between the card brands and their banks, meaning the major players in the industry work together to keep interchange rates high. There is also a consensus that the interchange fees are set supra-competitively, meaning that they are higher than they need to be and therefore generate profit at the expense of merchants and consumers.
What are merchant restrictions?
Merchant restrictions are the card brand rules that keep merchants from avoiding the interchange fee, such as the honor-all-cards rule, no-surcharging rule and no-discounting rule:
- Honor-all-cards rule: This prevents merchants from refusing to accept a particular type of credit or debit card. Currently, merchants can choose to accept credit cards, debit cards, both or neither. In short, if a merchant wants to accept any credit cards, it must accept all credit cards.
- No-surcharging rule:Although partially repealed by an earlier interchange settlement, the no-surcharge rule places limits on a merchant’s ability to surcharge. For instance, there are caps on a permissible surcharge and merchants cannot surcharge at the issuer level.
- No-discount rule: This rule is mostly repealed. Merchants can discount at the Card Brand level and the product level. However, merchants still cannot discount at the issuer level.
Merchants mostly take issue with the honor-all-cards rule. Because merchants must accept all types of credit and debit cards under card brand rules, the honor-all-cards rule effectively eliminates competition between banks for a merchant’s business. Because the honor-all-cards rule is in effect, merchants cannot successfully offset the interchange fee by negotiating directly with issuers for their business.
Arguments on both sides.
Merchants argue that the interchange fee and honor-all-cards rule are largely unnecessary. Merchants say these rules are designed to extract wealth and funnel money to wealthy banks and the card brands. They also assert they are effectively unable to negotiate with the card brands or banks to lower the interchange rate merchants pay for credit card transactions.
On the other hand, big network participants argue that interchange and the honor-all-cards rule are necessary for the integrity of the card brands.
For instance, interchange is a common tool in a system like the card brands’. This system is known as a “two-sided system.” The plaintiffs succinctly describe a two-sided system as one in which “[e]ach transaction is jointly consumed by Cardholders, who use Credit Cards to complete purchases, and Merchants, who accept those cards as a method of payment.”
Essentially, in a two-sided network, two user groups consume the same product or service symbiotically. However, because card brands sell this symbiotic service (card payment and acceptance), they must carefully balance both user groups to ensure equal participation. This is referred to as the chicken-and-egg problem. In short, consumers do not want to use a credit card that merchants do not take; and merchants do not want to take a credit card that consumers do not use.
Enter the interchange fee. Issuers use the interchange revenue generated from merchants to fund cardholder rewards. In doing so, networks induce cardholder participation in the credit card market, which in turn induces merchant participation. Because of the interchange fee, consumers are more incentivized to spend money on their credit cards, and merchants in turn benefit from consumers’ increased spending.
In a two-sided network, the costs are allocated between the network participants based on each participant’s willingness to pay. In this case, industry spectators theorize that merchants pay the interchange fee (and not the other way around) because merchants need card payments to maintain their bottom line more than consumers need to pay with credit cards.
If the interchange fee falls below a certain level, card rewards will follow, which will subsequently reduce cardholder participation. Reduction in cardholders’ network participation would mean a reduction in merchants’ network participation. The effect would be a downward spiral. Thus, some amount of interchange is preferable.
With respect to the honor-all-cards rule, the card brands generally point back to the chicken-and-egg problem. As of the date of writing, a cardholder can walk into almost any store and be sure the merchant will accept their cards, whatever that card might be.
However, if merchants could pick and choose which issuer’s cards they would accept (and each merchant chose a different issuer’s cards) it would introduce uncertainty into the market. As such, the card brands’ argument is that cardholders could no longer trust the networks and would stop using cards.
Each argument has merit. Although interchange rates ensure market participation, many agree they are higher than necessary. Although the honor-all-cards rule secures trust in the card brands, it inhibits merchants’ ability to negotiate for lower fees.
This latest iteration of the interchange litigation is yet another public tug-of-war between the card brands and their merchants. Although the outcome of this lawsuit remains to be seen, absent meaningful change in the card brand rules or the interchange fee, merchants will keep coming to the courts in search of redress for their interchange woes. 
Jessica Walsh is a contract attorney whose practice focuses on electronic transactions, including SaaS, merchant processing, referral, independent sales organization, and other related agreements. She regularly structures, drafts, revises, and negotiates agreements tailored to her clients’ operational and regulatory needs. Jessica graduated magna cum laude from the University of San Diego School of Law and was admitted to the Order of the Coif. She enjoys learning about merchant processing, interchange, differential pricing, and the card brand rules. Contact her at jwalsh@attorneygl.com. Lessons financial institutions must learn from.
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