A proposed legal settlement between Visa, Mastercard, and a group of U.S. merchants could soon change the way you use your favorite rewards credit card. The agreement, which aims to resolve a nearly two-decade-long dispute over transaction fees, may give retailers the power to decline premium cards or add extra charges for using them.
This development could directly affect consumers who use high-tier credit cards like the Chase Sapphire Reserve or Citi Strata Elite to accumulate points and miles. For years, retailers have been required to accept all cards within a payment network, but this new proposal could end that practice.
Key Takeaways
- A proposed settlement would allow merchants to reject high-fee premium credit cards from Visa and Mastercard.
- The deal also includes a temporary reduction in the interchange fees that retailers pay for five years.
- Major retail industry groups have already voiced strong opposition, arguing the changes are insufficient.
- The settlement does not apply to American Express or debit card transactions.
A 20-Year Battle Over Fees Reaches a Turning Point
For almost 20 years, Visa and Mastercard have been in a legal battle with merchants over interchange fees, also known as "swipe fees." These are the charges that businesses must pay to the payment networks every time a customer uses a credit card.
A central point of contention has been the "honor all cards" rule. This long-standing policy requires any merchant that accepts Visa or Mastercard to accept every type of card issued under those brands, regardless of the associated fees. This includes standard cards as well as premium rewards cards, which carry significantly higher processing costs for the merchant.
This new proposal, announced Monday, represents the latest attempt to find a resolution after a previous settlement was rejected by the courts.
The Rise of Premium Cards and Merchant Costs
Over the last decade, credit cards offering generous rewards, travel points, and cashback have become extremely popular. Cards like the Visa Infinite and World Elite Mastercard offer substantial benefits to consumers, but these perks are funded in part by higher interchange fees passed on to merchants.
The Cost of Rewards
The fee for processing a premium Visa Infinite card can be as much as 0.15% (15 basis points) higher than that for a standard Visa Signature card. While this may seem small, it adds up to billions of dollars for retailers across the country.
Under the current system, merchants have no choice but to absorb these higher costs if they want to accept credit cards at all. The proposed settlement aims to change this dynamic by giving them more control over which cards they accept.
How Your Shopping Experience Could Change
The most significant change for consumers lies in the potential modification of the "honor all cards" rule. If the settlement is approved, merchants will gain new flexibility that could play out in several ways at the checkout counter.
First, a retailer could simply choose to stop accepting certain high-tier credit cards. A small business, for example, might decide that the fees associated with premium cards are too high and opt out of accepting them. This means a customer attempting to pay with a high-reward card could have their transaction declined.
Second, the proposal may allow merchants to pass the higher cost directly to the consumer in the form of a surcharge. A customer using a premium card might see an extra fee added to their bill to cover the higher processing cost.
A Difficult Choice for Businesses
This places merchants in a challenging position. They will need to weigh the financial savings of rejecting high-fee cards against the risk of alienating affluent customers who prefer to use them for their rewards. Rejecting these cards could lead to lost sales and customer dissatisfaction.
This shift would primarily impact users of premium rewards cards, who are often higher-income consumers accustomed to earning points on their everyday purchases. It would not affect transactions made with debit cards or American Express cards, which operate under a different system and are not part of this litigation.
Details of the Proposed Settlement
Beyond the changes to card acceptance rules, the settlement includes a temporary financial concession to merchants. If approved, the agreement would provide some relief on swipe fees.
- Fee Reduction: Merchants would receive a 10 basis point (0.10%) reduction on their interchange fees for a period of five years.
- Rate Cap: For eight years, standard credit card transactions would be processed at a rate of 1.25% of the purchase price.
While these terms offer a temporary reprieve, many in the retail industry argue they do not address the long-term structural issues of the credit card market.
A Deal Facing Strong Headwinds
Despite being presented as a resolution, the proposed settlement was met with immediate and forceful opposition from major retail and merchant advocacy groups. These organizations argue that the changes are merely superficial and fail to introduce genuine competition into the payment processing industry.
"Once again, this proposal is all window dressing and no substance. The reduction in swipe fees doesn’t begin to go far enough, and the change in the honor-all-cards rule would accomplish nothing. If the courts can’t fix this, it’s time for Congress to take action."
– Stephanie Martz, Chief Administrative Officer, National Retail Federation
Merchant groups have long advocated for federal legislation to regulate credit card interchange fees, similar to the regulations that already exist for debit card fees. They believe that only congressional action can permanently solve what they describe as an uncompetitive market dominated by Visa and Mastercard.
For their part, the payment networks are eager to conclude the two-decade-long legal saga. A Mastercard spokesperson stated, "We believe that this is the best resolution for all parties, delivering the clarity, flexibility and consumer protections that were sought in this effort."
With strong opposition from the merchant class it is designed to appease, the future of this settlement remains uncertain. It must still be approved by the court, and the vocal criticism from industry leaders suggests it may face a difficult path forward, potentially leaving consumers and merchants in limbo once again.
