Visa and Mastercard Settlement A Step Toward Fairness

The Retail Industry Leaders Association (RILA) applauds the efforts of the Department of Justice to address the anticompetitive practices of Visa and MasterCard. However, merchants remain concerned about their ability to broadly apply the settlement to benefit consumers.

Last October, Department of Justice (DOJ) initiated legal action against Visa, MasterCard and American Express for anticompetitive practices that prevent merchants from steering consumers to low-cost payment options.  At the same time, a preliminary settlement of the case against Visa and MasterCard was announced, leaving the DOJ to pursue action against American Express in court.

Today, the U.S. District Court for the Eastern District of New York was asked to approve the Visa and MasterCard settlement.

“We applaud the Department of Justice for attempting to address the major anticompetitive practices regarding steering and discounting; however, serious doubts remain as to whether the settlement offers merchants the tools they need to take action,” said Katherine Lugar, executive vice president for public affairs. “Visa and MasterCard have a long history of handcuffing merchants through the anticompetitive network rules.  We expect Visa and MasterCard will continue to tie merchant’s hands by not providing the information needed to give consumers the credit card discounts and other valuable incentives as intended by this remedy. ”

The contracts that the card networks force merchants to obey prohibit merchants from encouraging consumers through incentives like discounts to use lower-cost card types.  Visa and MasterCard obscure the costs associated with credit cards by enabling issuers to change a card’s reward status without reissuing the card, a move that results in higher interchange rates. Consequently, merchants don’t learn the true cost associated with a transaction until long after it is completed, generally when a bill arrives at the end of the month, and consumers have no way of knowing if they have a high- or low-cost card.

The settlement relies upon a complicated, and yet to be available, electronic system to determine the interchange cost at the point of sale. Additionally, the settlement does not require that cards visually display their rewards status or interchange cost.  Therefore, neither merchants nor consumers will know, with any kind of ease, the interchange cost of an individual card and whether it qualifies for a discount.

RILA provided the DOJ with detailed Tunney Act comments on this matter in an effort to ensure the final settlement achieved the stated goals and could be implemented effectively to benefit consumers. 

“Throughout the process, merchants have been committed to providing the Department of Justice with the necessary technical input to make the settlement practically effective and provide consumers with he intended benefit.  Unfortunately, the settlement perpetuates Visa and MasterCard’s system of ever-changing swipe fees and hidden charges, and allows them to escape providing merchants with essential information to implement the settlement, rendering key provisions largely ineffective for merchants and consumers,” added Lugar.


About the DOJ settlement:

DOJ action against Visa, MasterCard and American Express focuses on credit cards, not other products like debit or prepaid cards.

When the settlement was announced in October 2010, it focused on three goals -- allowing merchants to:

1. Offer consumers discounts between payment types (credit v. debit v. check v. cash)

• This goal reinforces the reforms included in the Dodd-Frank Act last year.

2. Offer consumers discount between credit card networks (MasterCard v. Visa v. American Express)

• Given that the settlement is with Visa and MasterCard (and not American Express), this goal would effectively benefit those merchants that only accept Visa and MasterCard, since each card network’s rules prohibit merchants from providing a preference to another network.

3. Offer consumers discounts between credit card types within a brand (high rewards v. no rewards)

• It is on this point where the settlement falls short and cannot be implemented effectively by merchants.  


Select Quotes from the Department of Justice Response to RILA’s Tunney Act Comments:

“The issue RILA raises is an important one.  If a merchant cannot distinguish, for instance, a Visa rewards card carrying a high interchange fee from a lower-cost card (issued by either Visa or another network) or another less-costly form of payment, the merchant would be limited in its ability to steer consumers to, for example, the lower-cost General Purpose Card.”  

“The United States learned that Visa offers, and MasterCard will soon offer, such an electronic means to differentiate among card types.  These electronic services address the concern raised by RILA for many merchants.

“The United States recognizes that these services are not a complete solution for merchants as some may require additional terminal programming and coordination with the merchants’ Acquiring Banks, and the services will not be available during periods when electronic communications among the merchant, the Acquiring Bank, and Visa or MasterCard are not working.  It is possible that if an additional component of RILA’s proposed relief were imposed (i.e., if there were a  mandatory unique visual identifier for each type of card subject to a different interchange fee tier), it would be easier for merchants to identify for consumers the lower-cost cards for which a discount or other inducement might be available.” (Page 18)


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