This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Credit Card Settlement May Side-Swipe Consumers

Stocks in this article: MAVJPMBAC

NEW YORK ( LowCards.com) -- Retailers reached an antitrust settlement on interchange fees with Visa (V), MasterCard (MA) and several large banks that will be good for merchants, but may hit cardholders with higher prices and drastically decreased credit card rewards. Indeed, if the settlement concludes another round in the battle over interchange fees, it begins a new round with the merchants and banks circling each other and trying to figure out how to pass on the costs to consumers without generating too much backlash.

For consumers not even aware that interchange -- or "swipe" fees -- were being charged, here's the back story leading up to the landmark settlement and the potential side-swiping of consumers that could occur as a result of it:

When consumers swipe a card for payment at the register, Visa and MasterCard charge the retailer a fee, commonly called an interchange or swipe fee, every time a credit card or debit card is used for payment. The card processor collects the fee and splits it with the bank that issues the card. The fee on a credit card typically ranges from 1.5% to 3% of the transaction, depending on the merchant and the type of card. Merchants have fought against this fee because it cuts into their profits and is one of the biggest costs of running a business. Merchants hope this settlement increases transparency and forces card processors to reduce the amount they charge for interchange fees.

Credit card processors defend the fee because it covers the expense of the processing the card, the risk of fraud, and the cost of providing funds while payment is pending.

The $7.25 Billion Settlement
Credit card companies have agreed to reduce swipe fees for eight months. This temporary adjustment is valued at $1.2 billion by plaintiffs' lawyers. In addition, MasterCard, Visa and major banks, including JPMorgan Chase (JPM) and Bank of America (BAC), agreed to pay more than $6 billion to settle accusations that they engaged in anticompetitive practices and price fixing in payment processing. Visa will pay $4.4 billion while MasterCard will pay $790 million.

The settlement did not include American Express (AXP) or Discover Financial Services (DFS) because both of these issuers already permit swipe fee surcharges, as long as merchants impose surcharges on payments with other rival cards.

A judge in the U.S. District Court must still approve the settlement and this may not happen until at least the end of the year. Merchants cannot assess a surcharge until this approval and there will be a cap on the amount they can charge. There are ten states that prohibit merchant surcharges and retailers in those states must still abide by state law. These states are: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,195.42 +221.11 1.30%
S&P 500 0.00 -2.75 -0.14%
NASDAQ 4,566.1380 +16.9120 0.37%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs