Suit on interchange fees between credit card firms, merchants settled

SAN FRANCISCO/NEW YORK: This week, Visa and Mastercard announced a settlement with U.S. merchants that could end nearly two decades of litigation over interchange fees.

Visa and Mastercard charge interchange fees every time a credit or debit card is used in a store or restaurant.

The deal would lower and cap the fees and allow small businesses to collectively bargain for rates like large merchants.

While the settlement is a positive development, far more must be done to finally settle the issue, Industry groups representing small and large retailers said that the lowered fees would only apply for three to five years, after which they would return to their current levels.

Jeff Brabant, vice president of federal government relations at the National Federation of Independent Business, a small-business advocacy group, said, "While this settlement is a step in the right direction and will provide a limited amount of short-term relief to small businesses, it does not solve the long-term anti-competitive rate-setting practices that are the root of this problem."

Merchants ultimately pass on interchange fees, calculated as a fixed fee plus a percentage of the sales total, typically about one percent to three percent, to consumers who use credit or debit cards.

According to the settlement announced this week, Visa and Mastercard will cap the credit interchange fees until 2030, and companies must negotiate the fees with merchant-buying groups.

The settlement is the outcome of a 2005 lawsuit that alleged merchants paid excessive fees to accept Visa and Mastercard credit cards, which violated antitrust laws along with their member banks.

However, the Retail Industry Leaders Association, a trade group representing Target, Home Depot, and other major chains, said, "This settlement is a mere drop in the bucket."