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Breaking Down the Visa and Mastercard Settlement

For nearly 20 years, Visa and Mastercard have been in litigation over interchange fees. The litigation could potentially end as Visa and Mastercard announced a major settlement with U.S. merchants on Tuesday, March 26.

What’s in the settlement?

As part of the settlement, Visa and Mastercard agreed to reduce and cap credit card interchange fees. The settlement, which is still subject to approval by the U.S. District Court for the Eastern District of New York, requires Visa and Mastercard to roll back published fees by at least 4 basis points for at least three years. They also agreed not to raise fees above their levels at the end of 2023 for the next five years. It is currently unclear how this settlement could impact interchange fee revenue for credit unions. We will learn more about this development and share additional information as we receive it.

The settlement also removes anti-steering restrictions and allows for competitive pricing:

  • Merchants can charge for using a Visa or Mastercard credit card, regardless of whether they can charge for using American Express, whose rules for merchants were upheld by the Supreme Court in 2018.
  • Merchants can discount at the issuer level thereby steering consumers to more preferred cards and promoting increased competition among the networks and the numerous credit card issuers.
  • Merchants will be able to adjust prices based on the costs associated with accepting different credit cards, promoting efficient price signaling and enhancing transparency for consumers.
  • Merchants will be permitted to provide customers truthful information as to why they are applying a charge for credit card use

How will the settlement impact the Credit Card Competition Act?

As expected, this settlement has caused both sides of the Credit Card Competition Act to claim a victory and dig in even further. Retailer sentiment can be found here, and it simply states that the settlement is a “drop in the bucket” and that more substantial, permanent reform is needed. The Electronic Payments Coalition (of which America’s Credit Unions is a member), on the other hand, claims that this settlement “helps small businesses more than a haphazard, experimental piece of legislation that only benefits the largest corporate mega-stores ever would. Congress should put an end to the ill-advised Durbin-Marshall mandates and let the agreement merchants reached stand on its own.” Attached is a one-pager they released highlighting how this settlement nullifies the need for the CCCA.

As with most things in Congress these days, each side will claim victory and retreat to their corners. However, it is undeniable that this could fundamentally change how we discuss changes to the current interchange system in Congress. Your League will continue to analyze the settlement and convey reactions or suggestions moving forward. We will also continue our strong opposition to the Credit Card Competition Act. This misguided legislation could double fraud costs for credit unions, while doing nothing to lower consumer costs.

What’s next?

We are following the issue very closely and will share updates as they become available. In the meantime, please let us know if you have any questions.

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