How the Visa-Mastercard Swipe Fee Settlement Affects Cardholders

It could lower costs for businesses and consumers, but fee reductions end after five years.
Sara Rathner
By Sara Rathner 
Edited by Kenley Young

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Visa and Mastercard reached a settlement with U.S. merchants this week that could have some trickle-down effects for consumers if the deal is approved. The agreement would lower credit card interchange fees, which merchants pay to process credit card transactions, and hold them at that reduced rate for several years. It also would limit the surcharges that merchants could impose on customers who pay with credit cards.

This settlement isn’t connected to the Credit Card Competition Act, bipartisan legislation that seeks to introduce greater competition among credit card payment networks in the hopes of lowering interchange fees.

The settlement still has to be approved by a federal court. If it is, here's how it could affect consumers.

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What the settlement could change

Merchants’ costs of doing business (and maybe your shopping bill)

According to the terms of the settlement, Visa and Mastercard must lower their interchange fees by at least 4 basis points (that’s 0.04 percentage points) for at least three years. For five years, they can’t raise these fees above 2023 levels, and average interchange fees must be at least seven basis points (or 0.07 points) lower than the current average rate. In other words, interchange fee levels would be lowered for five years.

This interchange fee reduction could save merchants $29.79 billion in the five years after the settlement is approved, according to a statement by one of the law firms representing the class of merchants in the lawsuit.

Theoretically, merchants could pass these savings on to consumers in the form of lower prices or at least prices that remain stable over several years. They could also reinvest the savings into their businesses, such as by improving customer service. But there’s no requirement for merchants to do any of these things.

How you choose to pay

Other terms of the settlement put a limit on credit card surcharges, which are additional fees customers sometimes have to pay to use a credit card at checkout. Currently, Mastercard limits surcharge amounts to no more than 4%, while Visa limits surcharges to 3%.

The new surcharge cap would be 1% on Visa or Mastercard cards, regardless of what surcharges merchants impose on cards on other payment networks, such as American Express and Discover. If the merchant doesn’t accept cards on other payment networks, the surcharge is capped at 3%.

Merchants would be allowed to “steer” customers toward paying in certain ways, such as encouraging the use of cards on certain payment networks by offering lower surcharges. This could affect how you choose to pay for purchases based on what terms a merchant offers.

What won’t change

Credit card access and rewards

According to Visa, this settlement wouldn’t affect consumers’ access to credit, nor would it affect credit card rewards programs.

“By negotiating directly with merchants, we have reached a settlement with meaningful concessions that address true pain points small businesses have identified,” Kim Lawrence, Visa's president for North America, said in a statement. “Importantly, we are making these concessions while also maintaining the safety, security, innovation, protections, rewards and access to credit that are so important to millions of Americans and to our economy.”

The Credit Card Competition Act

Again, this settlement is separate from the proposed Credit Card Competition Act. The settlement is a result of litigation that began in 2005, while the CCCA was first introduced in 2022.

A statement from the Electronic Payments Coalition, which opposes the CCCA, said the settlement eliminates the need for legislation on interchange fees.

“The agreement between merchants, Visa, Mastercard and financial institutions has been decades in the making and treats businesses of all sizes equally without government mandates or jeopardizing consumers’ data security and rewards programs,” EPC executive chairman Richard Hunt said.

The Merchant Payments Coalition, a CCCA proponent, counters that a temporary fee reduction leaves consumers and businesses hanging once the five-year period is over.

“A few years of very small relief followed by business as usual is not a good outcome from 20 years of litigation,” said a statement from Christopher Jones, a member of the merchant coalition's executive committee and the National Grocers Association's senior vice president of government relations and counsel. “The settlement does nothing to actually bring competitive market forces to swipe fees or change the behavior of a cartel that centrally fixes rates and bars competition. Instead, it tries to provide token, temporary relief and then allows the card companies to raise rates yet again.”

What’s next?

Nothing is finalized just yet. The settlement must first be approved by the U.S. District Court for the Eastern District of New York. A statement from Mastercard estimates the changes spelled out in the settlement would go into effect in late 2024 or early 2025.

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