Visa and Mastercard on Monday agreed to a settlement to end the long-running “swipe fee” lawsuit, but the proposal has the restaurant and retail industries crying foul.
The two credit card giants proposed a $38 million settlement with the merchants who filed the lawsuit in 2005. The group of retailers and associations alleged that Visa and Mastercard essentially have a monopoly on the credit card transaction processing market that allows them and their banking partners to charge unnecessarily high fees for every transaction using their cards.
Under this week’s proposal, which is subject to court approval, interchange fees, or swipe fees, would be lowered by an average of 0.1 percentage points over a five-year period. Last year, swipe fees reportedly averaged 2.35%.
A key provision in the proposed settlement, however, is that merchants would be able to choose what cards to accept in certain categories—and potentially to reject certain types of cards that charge higher interchange fees.
Rather than requiring merchants to “honor all cards,” under the proposal, cards would be segregated in categories based on features like commercial cards or whether they offer rewards. Typically, rewards cards have higher interchange fees.
Merchants could also have more options for adding a surcharge up to 3% when customers pay using a card.
In addition, standard consumer rates would be capped for eight years at 1.25%, which would be a reduction of more than 25%.
Restaurant industry officials, however, said this week’s proposal does nothing to address the price-fixing allegations.
“It’s remarkable that anyone could think a temporary 10 basis point reduction—barely more than last year’s increase—is fair compensation for allowing a credit card duopoly to maintain their pricing cartel for eight more years,” said Sean Kennedy, executive vice president of public relations for the National Restaurant Association. “Restaurant and small business owners deserve better than crumbs from a broken system.”
U.S. swipe fees have more than doubled over the past decade, according to the association. For many restaurant operators, processing credit card transactions is their third-largest operating expense, behind food and labor. And, generally, restaurant operators are forced to pass those fees onto consumers.
Swipe fees for Visa and Mastercard credit cards alone totaled $111.2 billion last year, and total credit and debit card swipe fees hit a record $187.2 billion, according to the Merchants Payments Coalition.
Erika Polmar, executive director of the Independent Restaurant Coalition, said the proposed fix of the “honor all cards” rule does little to help restaurants, since 85% of transactions include rewards cards.
“It effectively puts the burden on restaurants to anger our customers if we want lower costs,” Polmar said in a statement. “That’s a lousy choice.”
A settlement proposed last year would have lowered interchange fees by 0.07%, but it was rejected by the U.S. District Court judge at the time, who said it didn’t go far enough to protect retailers.
Jennifer Hatcher, chief public policy officer at the Food Industry Association and a member of the executive committee at the Merchant Payments Coalition, urged the District Court to reject the current settlement as well.
“Achieving a settlement that works to reverse current illegal and anticompetitive practices of Visa and Mastercard should be straightforward, but this attempt fails once again and should be rejected,” she said.
Visa, in a statement, said the proposed settlement would give merchants “meaningful relief, more flexibility and options to control how they accept payments from their customers.”
Mastercard, meanwhile, also said in a statement the proposal brings clarity, flexibility and the sought-after consumer protections.
"Smaller merchants will gain in this settlement—more acceptance choices, reduced costs and simplified rules," Mastercard said in a statement. "Even more, it allows us to focus our energies on continuing to give consumers, small businesses and larger merchants what they expect from Mastercard—a better payments experience, strong value and peace of mind."
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.