A lengthy legal battle spanning 50 lawsuits against Mastercard and Visa has reached a $7.25 billion settlement that could result in an increase in credit card fees everywhere.
The biggest beneficiary? Retail merchants who hold merchant accounts.
As part of the standard agreement with the world’s two largest credit networks, businesses had to pledge that they would not charge customers any fees beyond the 3% interchange fees that is paid to these two networks.
The 3% interchange fees are paid by the retailer, and they could not, by law, pass this cost along to consumers - until now.
Retail Merchants Can Charge Their Own Fees Above 3% Interchange
The ban has been lifted, allowing retailers to charge up to an additional 3% for purchases made with credit cards. Consumers will have to pay an increased price for their purchases, unless they want to pay cash.
The basis of the class-action lawsuit was that the interchange fee is set arbitrarily high. Retailers in Portland, Vancouver, and the entire US have questioned the necessity of a 3% interchange fee, especially after the Dodd-Frank bill cut debit card fees in half.
Last year, the Justice Department forced Mastercard and Visa to back down from efforts that would have banned merchants from offering promotions or lower prices for customers who paid in cash, or used lower-fee cards.
Could Consumer Spending Be Affected?
Now, in the wake of the new settlement, consumers could see a significant price difference between paying with paper or plastic.
This could be why large retailers such as Wal-Mart have come out against the settlement, saying it will not fix a “broken system” of swipe fees.
For small business owners, however, whose credit card fees can total tens of thousands of dollars per year, the settlement is a big win. They can pass the interchange fees on to the consumer, or encourage using alternate payment methods, or both.