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Visa And Mastercard Reach Settlement In Antitrust Suit Regarding Swipe Fees

Updated: May 6

As reported by ABC News, Visa and Mastercard have reached a settlement with U.S. merchants that could resolve nearly twenty years of litigation over swipe fees. The agreement would reduce and cap the fees charged by the payment processors, and allow small businesses to collectively bargain for rates in a similar manner to larger merchants. However, retailers have stated that the settlement is only a step in the right direction, and more must be done to address the ongoing anti-competitive rate-setting practices. 

“While this settlement is a step in the right direction and will provide a limited amount of short-term relief to small businesses, it does not solve the long-term anti-competitive rate-setting practices that are the root of this problem,” said Jeff Brabant, vice president of federal government relations at the National Federation of Independent Business, a small-business advocacy group.

“As long as the credit card networks, Visa and Mastercard, get to set the interchange rates for every bank that issues a credit card, anti-competitive pricing will remain, and small businesses will continue to pay artificially high rates.”

Swipe fees are paid to credit card companies in exchange for enabling transactions, with merchants passing on these fees to customers who use credit or debit cards. 

Visa and Mastercard will cap the credit interchange fees until 2030, and the firms must negotiate the fees with merchant-buying groups. The settlement stems from a 2005 lawsuit alleging that merchants paid excessive fees to accept Visa and Mastercard credit cards, and that Visa and Mastercard and their member banks acted in violation of antitrust laws.

The law firm that announced the settlement valued the savings in swipe fees at close to $30 billion.

“This settlement is a mere drop in the bucket,” said the Retail Industry Leaders Association, a trade group representing Target, Home Depot and other major chains. “It proves that merchants deserve injunctive relief, but whether the settlement terms proposed are sufficient to remedy the harm caused by the current interchange system needs to be carefully reviewed.” 

Small businesses have been struggling with swipe fees since the pandemic, as cash usage plummeted and most people began using cards. Mary Liz Curtin and her husband own two businesses, Leon & Lulu, a retail store in a converted vintage roller skating rink, and Three Cats Restaurant, a restaurant in a converted vintage movie theater, in Clawson, Michigan, said that swipe fees have become a particular problem since the pandemic, with the roughly 3% swipe fee she pays eating up a lot more revenue than before. “Like every retailer, our cash sales and check sales have plummeted because people are charging everything,” Curtin said. “And that just means that there’s a lovely slice of 3% off the top of all of your sales.”

She welcomed the settlement.

“I am delighted in anything that will ameliorate the situation,” she said. “I think this is going to help a little bit.” 

Mike Roach, who owns Paloma Clothing with his wife in Portland, Oregon, said that swipe fees have been a significant cost of business, with years when the card fees were greater than his rent. He thinks that the settlement “isn’t going to change anybody’s bottom line by much,” he stated. “But it’s a step in the right direction.” 

The settlement is in addition to a $5.54 billion settlement between Visa and Mastercard and 18 million businesses that accepted Visa or Mastercard during a 15-year period up to January 25, 2019. Eligible merchants that received a claim form in the mail in December and January can claim a share of that settlement until May 31st.

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