Credit card fees are a small but persistent part of a significant share of promo businesses’ transactions. To operate above certain scale, these fees are unavoidable. However, developments on Capitol Hill and in the courts suggest a growing awareness among regulators of the challenges these “swipe fee” represent, particularly to small businesses.

A federal judge has rejected a $30 billion antitrust settlement by Visa and Mastercard and a group of merchants that stems from a suit filed back in 2005.

  • The settlement would have involved Visa and Mastercard rolling back swipe fees by four basis points for three years and capping their fees at 2023 levels for the next five years.
  • The proposed deal had already been criticized by retail groups as a temporary solution to a long-term problem.

Meanwhile, a bipartisan group of legislators is pushing the “Credit Card Competition Act of 2023,” legislation that asserts that the current status quo of credit card fees is an unfair process that puts an unnecessary burden on retailers.

  • Together, Mastercard and Visa control 80% of the credit card market, which the bill argues allows them to maintain or increase high fees with little recourse for retailers.

PPAI Research found that promo distributors had been charged merchant fees as high as 5.08%.

Why Was This Settlement Rejected? (And What Might That Mean For The Future?)

The rejected settlement that Mastercard and Visa agreed created a dilemma. By proposing a short-term concession, it could be seen as admitting to a problem with the status quo while not providing a resolution that addresses the structural issue.

  • While some merchants agreed to the settlement – and claimed that it would save tens of billions of dollars over the five-year period – the Retail Industry Leaders Association called it “a mere drop in the bucket.”
  • Doug Kantor, general counsel at the National Association of Convenience Stores, told The Hill, it would provide “very tiny and temporary relief” and “tries to cut off every other merchant with a lawsuit from being able to ask for more.”

Visa’s North American president, Kim Lawrence, had said the settlement included “meaningful concessions that address true pain points small businesses have identified.

Why the judge denied the settlement cannot be confirmed as the full order is sealed, but the vocal opposition to the settlement by many in the retail industry points suggests that more systematic change may be on the table.

“It’s extremely unusual for a judge to reject a settlement at the preliminary stage, so this shows how far Visa and Mastercard’s proposal missed the mark,” says Christopher Jones, chief government relations officer and counsel at the National Grocers Association and a member of the executive committee of the Merchants Payments Coalition.

Is The ‘Credit Card Competition Act of 2023’ The Solution?

The Credit Card Competition Act of 2023 would curb merchant fees by requiring any credit card issuer with over $100 billion in assets to allow at least two credit card networks to be used on their credit cards instead of just one.

  • Notably, at least one of the networks mandated by the legislation would have to be outside the Visa and Mastercard duopoly. As the name suggests, the bill looks to solve the problem through competition.
  • The effectiveness of this act is impossible to measure ahead of time, and some are warning that one ripple effect would be that credit card rewards programs may come to an end.

“The additional competition may sound good in theory, but the ultimate consequences of the CCC Act are unclear,” wrote George B. Delta of the Incentive Federation.

The European Union regulates consumer credit cards much more strictly, with a 0.3% cap on interchange fees, a drastic difference from the fees that many promo distributors have accepted as the cost of business.

Jones, of the National Grocers Association and Merchant Payments Coalition, has called the CCC Act “the only way to bring true relief and fix the broken payments market.”