Card Issuers Screw Retailers and Customers in Swipe Fee Settlement

If you’ve ever wondered why your favorite bakery has a credit card minimum, ask them about swipe fees. They’ll be more than happy to explain how credit card companies screw them on each and every transaction.

Yep, swipe fees are in the news. Again.

A judge has given the preliminary go ahead to a $7.2 billion settlement between The National Retail Federation and major credit card companies, after seven long years of litigation. If the settlement over alleged swipe fee fixing gets final approval – and all signs indicate it’s going to – it will be “the largest federal antitrust settlement in U.S. history.” Sounds like a well-deserved slap in the face to credit card companies and a pretty sweet deal for retailers and consumers alike, right? Well, not so fast. Even big corporate retailers like Target and Home Depot are calling shenanigans. And it seems that once again, the consumer will ultimately be asked to pay the price.

The settlement will entitle any store that accepts Visa or Mastercard – around 8 million in total – to the $7.2 billion in damages, as well as temporary reductions on swipe fees. (Those are the fees merchants are charged when a customer pays with a credit or debit card). But nearly half of the 19 original plaintiffs in the case still, much like Mick Jagger, can’t get no satisfaction. They argue that a $7.2 billion settlement is chump change when you consider that Visa and Mastercard rake in an astonishing $30 billion from swipe fees every single year. Objectors also point out that because the terms of this settlement protect Visa and Mastercard from any further prosecution on these issues, it will actually give the credit card giants even more power.

While retailers are wary of the settlement, the credit card companies seem pleased as punch. Visa called it “a fair and reasonable compromise.” Mastercard pointed out that many retailers are happy with the settlement because it gives them permission to charge customers their own swipe fees when they pay with plastic. Yeah, you read that right. Now that credit card companies are getting less and retailers are paying less (at least temporarily), you could end up paying more.

Lawyers for these merchants have rebutted these objections, saying that this is actually a good thing because it “allows more transparency.” When you buy something, your “checkout fee” will be plainly visible on your receipt. You know, so that you’re aware that you’re being ripped off and paying for something the retailer used to pay for.

Will the reduced costs to retailers and the added charge for consumers mean a drop in merchandise prices? If the past is any indication, nope. The Durbin Amendment reduced the amount credit card companies and banks can charge per swipe fee, but since its enactment prices have gone up.

While this huge settlement might have seemed exciting at first glance, at core it’s just another victory for the powers that be. “This proposal benefits no one but lawyers and credit card companies,” said the National Retail Federation’s senior VP and lawyer, Mallory Duncan. And of course, the credit card companies claim it’s the retailers who win. So chock this up to another loss for consumers. Bummer.