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Visa and MasterCard Settlement and Merchant Surcharging

by | Mar 5, 2013

We first briefed you on pending antitrust litigation launched by retailers against the card brands Visa, MasterCard and American Express and brought on by the US Justice Department back in October 2010.   Visa and MasterCard settled the class action suit in mid 2012 to the tune of billions in merchant refunds and major regulatory changes.  In addition, the card brands will reduce interchange fees going forward, temporarily, until the new regulations resulting from the settlement – are implemented.    There were two primary issues at play –

 A money issue – in short that merchants were charged excessive fees to accept the two cards – and that in charging the fees – the two card brands (Visa/MasterCard) and their respective banks violated antitrust laws.

  1. Excessive regulations imposed on merchants who wish to accept the cards.

Todd Zywicki of Forbes followed up the settlement news in August of 2012  by asserting that consumers will be winners in this latest round of interchange attacks.  We agree with his points that free markets and consumer choice should drive interchange fees not politics and judges – and now hopefully – this quick settlement will put an end to the US Governments dabbling in credit card processing and the issue of interchange.   Zywicki points to the disastrous effects of  the Durbin Amendment in the Dodd Frank Financial Reform Act – resulting in a the transfer of billions in profit from big banks to big retailers.  The Act regulated debit card interchange fees, a move that impacted consumers with a barrage of new banking fees – the very “group” Durbin claimed would profit from the new legislation.

By now, all merchants should have received notice of the class action suit and preliminary settlement.   Merchants interested in getting their share of the “refunds” can find the details at Payment Card Interchange Fee Settlement.

 After jumping into the class action fray – merchant attention should turn to new regulations  – specifically, and for purposes of this blog – merchant surcharging.   The regulatory change allows retailers/merchants to tack “surcharges” on to any purchase made with a credit card (NOT debit card).  The change takes place January 27th 2013 and the basics are listed here –

  • Merchants can surcharge – if they do so – it must be the same across all card brands.
  • Merchants must notify Visa/MasterCard and their acquirers in advance of the decision
  • The surcharge cannot be more than the transaction fee charged the merchant (it is not meant to be an additional “profit” area
  • Merchants must notify customers of the surcharge upon store entrance , website page, at the point of sale, and on the receipt.

 Showing the surcharge on the receipt is a challenge for processors and acquirers.  It is the reason the card associations are implementing temporary reductions in interchange rates  – to allow time for system and POS updates.  Tricky.

 We wonder how consumers will react though, to the big sign in the window or at the register that warns about surcharges on credit card transactions – it’s a little weak as a marketing strategy.

 Some folks are NOT happy with the settlement (Walmart, Target and of course, Durbin) – insisting that it is not in the best interest of the consumer.  Others feel that opponents of the regulatory changes are far more concerned about their own wallets.  It’s worth mentioning that part of the settlement is that the card associations will not be subject to further litigation regarding the credit card interchange issue….

 If you are a merchant with questions and you should be, go to the Visa or MasterCard sites for the ditty on the details.  Priority Payments XBS  and XBS Global anticpates that our merchants will have surcharging capability by mid to late 2013.  Please feel free to contact our customer service with any questions you may have regarding the changes @ 800-935-5961.