Visa and Mastercard to end 20-year legal feud? Credit card giants mull cutting interchange fees: Report

Visa and Mastercard are close to reaching an agreement with merchants to reduce interchange fees and allow stores to reject certain credit cards in a bid to end a 20-year legal dispute, according to a report by the Wall Street Journal, citing sources familiar with the matter.

Under the terms discussed, Visa and Mastercard would reduce credit card interchange fees, which are typically in the 2% to 2.5% range, to an average of one-tenth of a percentage point over a period of time. They also plan to relax rules that require a network to accept all merchants that accept one of their credit cards.

The report stated that the settlement agreement is expected to be announced soon, but court approval will be needed for the agreement to come into force.

For example, if the agreement is finalized, merchants that accept a particular type of Visa credit card will not be required to accept all Visa credit cards. In the report, according to current discussions, credit card acceptance; It was stated that they will be divided into different categories: reward credit cards, credit cards without reward programs and commercial cards.

What’s this fight about?

The legal dispute began in 2005 when merchants sued Visa, Mastercard and major banks, accusing them of engaging in anticompetitive practices over interchange fees and acceptance conditions.

Last year, both companies agreed to reduce interchange fees by an average of about 0.07 percent over five years; This was expected to create flexibility for merchants who wanted to impose surcharges, a practice where consumers are charged extra when they pay by credit card.

However, the court rejected this agreement. People with knowledge of the development told the publication that the latest deal currently being discussed could include additional compensation.

What are the challenges?

The challenge in this case revolves around the distinction between lawyers for different merchant blocs. In the past, the lawyers the judge selected to represent the merchant class did not agree with the lawyers representing large merchants and trade groups.

Tensions between merchants and networks have increased significantly over the past 20 years, particularly due to the rise in interchange and other fees.

Another controversial topic continues to exist regarding the proliferation of reward credit cards. Any points, miles or refunds given to consumers are partially covered by exchange fees. Premium credit cards or those with more generous rewards programs often charge higher interchange fees from merchants.

Under current rules, merchants cannot refuse to accept a Visa rewards credit card if they accept other types of Visa credit cards.

The legal dispute affected consumers. In recent years, many merchants have passed on interchange fees to consumers through surcharges.

The report, based on the Nilson report, states that banks and financial institutions issuing Visa and Mastercard credit cards collected $72 billion in interchange fees. If the deal is finalized, wages will fall for several years. But other fees have increased over the years.