Background and Parties Involved
Visa and Mastercard have announced a revised $38 billion settlement with merchants who accused the credit card networks of charging excessive fees for accepting their credit cards. This agreement aims to satisfy a federal judge who previously rejected a smaller $30 billion settlement, deeming it insufficient.
The lawsuit, spanning 20 years, alleged that Visa, Mastercard, and banks conspired to violate U.S. antitrust laws by charging “transaction fees” through the credit card networks.
Merchant Groups’ Concerns
Despite the new agreement, merchant groups, including the National Retail Federation (NRF) and the Merchants Payments Coalition (MPC), expressed opposition. They argue that the agreement does not address their concerns, as highlighted by Judge Margo Brodie in her rejection of the smaller settlement.
These groups claim that businesses would still pay excessive fees, even for popular reward cards dominating the credit card market. Stephanie Martz, general counsel for NRF, stated, “You can’t just tell over 80% of customers using credit cards that their cards won’t be accepted. A lot of business would be lost.”
Transaction Fee Reductions
Under the new agreement, Visa and Mastercard are required to reduce transaction fees. As of 2024, the average fee was 2.35%, typically ranging from 2.0% to 2.5%. The fees will decrease by 0.1 percentage points over five years.
Merchants will have the option to choose which American credit card categories they accept, such as business cards, premium consumer cards (many of which are reward cards), and standard consumer cards.
Standard consumer fees will be capped at 1.25% for eight years, representing a more than 25% reduction.
Merchants will also have greater flexibility to impose surcharges when customers pay with credit cards, including the possibility of charging up to 3.0% “without restrictions,” according to a court document.
Expert Opinions on Savings
Economists Joseph Stiglitz and Keith Leffler, hired by the plaintiff merchants, stated that ending the “upward spiral” of transaction fees could save merchants $38 billion by 2031.
In a court document, the experts also claimed that the agreement’s reforms could unlock significant competition and benefit consumers by breaking free from an “inefficient and non-competitive payment system.”
Key Questions and Answers
- What is the purpose of this settlement? The settlement aims to address merchants’ concerns about excessive transaction fees charged by Visa and Mastercard.
- Who are the parties involved? Visa, Mastercard, and numerous merchants, represented by the National Retail Federation and Merchants Payments Coalition.
- What are the transaction fee reductions? Visa and Mastercard will reduce their average 2.35% transaction fee by 0.1 percentage points over five years.
- What options do merchants have regarding accepted credit card categories? Merchants can choose which American credit card categories to accept, including business, premium consumer (reward), and standard consumer cards.
- What are the expert opinions on savings? Economists Joseph Stiglitz and Keith Leffler estimate that ending the upward spiral of transaction fees could save merchants $38 billion by 2031.
