Visa and Mastercard settlement with US merchants will cause confusion for consumers and harm community banks

Visa and Mastercard have reached a settlement in their 20-year-long legal battle with US merchants. The settlement gives merchants the ability to reject reward-based credit cards, an action which would cause confusion for consumers and hurt community banks that issue such cards. CEI Director of Finance Policy and Senior Fellow John Berlau urges lawmakers to not make matters worse with heavy-handed financial regulations. 

“Today’s reported settlement of the meritless decades-long antitrust suit against Visa and Mastercard will harm consumers, community banks, and credit unions while making the nation’s biggest retailers even richer.

“The settlement’s forced reduction in interchange fees paid by retailers to card issuers will simply shift the costs of payment processing to credit card users, just as the regressive Durbin Amendment has done for debit cards users since its implementation 14 years ago. The settlement’s end to the honor-all-cards rule that merchants voluntarily agreed to when accepting cards from issuers could have similarly regressive effects in higher costs for everyone, from consumers who use cards to collect airline miles to the small banks and credit unions that may no longer have the same access from retailers as part of these credit card networks.

“Since they began as bank-owned cooperatives more than 50 years ago, the Visa and Mastercard payment card networks have enabled banks and credit unions of all sizes to issue credit and debit cards that consumers can get from their local financial institution and safely and securely use anywhere in the world. This lawsuit from retailers asserting that these arrangements are somehow anticompetitive is absurd. Visa and Mastercard have plenty of competition from other cards such as American Express and the now—combined Discover and Capital One, as well as from payment services, such as Venmo, Zelle, cryptocurrency, and buy-now-pay later firms that merchants and consumers can utilize.

“Given the hit that consumers and small financial institutions will face with this suboptimal settlement, it is incumbent on lawmakers not to worsen their situation with further mandates to force down credit card processing fees, such as the Durbin-Marshall legislation. Such measures would only serve to further harm payment innovation and consumer welfare.”

More from CEI:

• “The Bipartisan War on Credit Hurts the Poor” by Iain Murray
• “Durbin-Marshall & Reg II Benefit Big Retail At Consumers’ Expense” by John Berlau