Payment networks, merchants announce settlement on interchange suit

Visa, Mastercard, major credit card issuers, and the merchants suing them announced a proposed settlement to end nearly two decades of litigation over credit card interchange. ICBA is analyzing this new settlement to determine the impact on the community banking sector.

Details: According to the plaintiff coalition, the proposed settlement includes provisions that would:

• Require Visa and Mastercard to cut the posted interchange fee of every merchant by at least four basis points for at least three years.

• Bar the networks from raising interchange fees for merchants above the posted rates that existed as of Dec. 31, 2023.

• Require the average effective systemwide interchange fee for Visa and Mastercard to be at least seven basis points below the current average rate.

• Allow merchants to discount at the issuer level and adjust surcharges based on the costs associated with accepting different credit cards, thereby steering consumers to preferred cards.

• Require Visa and Mastercard to negotiate interchange fees with merchant buying groups.

• Permit merchants to discount debit card transactions.

Congressional Implications: The proposed settlement, which is subject to approval by the U.S. District Court for the Eastern District of New York, generated competing interpretations about how it will affect ICBA-opposed legislation to implement credit card routing restrictions.

• Lawmakers including Sen. Bill Hagerty (R-Tenn.) and House Financial Services Committee Chairman Patrick McHenry (R-N.C.) said the settlement shows legislative intervention is unnecessary.

• Sen. Richard Durbin (D-Ill.) said the settlement solidifies the need for the Credit Card Competition Act (S. 1838/H.R. 3881), the ICBA-opposed bills that would allow merchants to process credit card transactions based solely on which network offers them the lowest cost without regard to safeguarding consumer information.

Grassroots Alert: While ICBA reviews the settlement, community bankers can use ICBA’s Be Heard grassroots action center to continue urging their senators to oppose the legislation and any attempt to tie it to unrelated, must-pass government funding bills.

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