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Credit Card Settlement May Side-Swipe Consumers

The settlement may not completely end the battle over swipe fees. The National Association of Convenience Stores, a trade group representing more than 3,700 merchants and a plaintiff in the lawsuit, rejected the settlement and hired a law firm to get a better deal. It is protesting that the settlement still leaves the issuers with too much control over swipe fees.

The settlement does not apply to debit cards. Last year, debit card swipe fees were basically cut in half by regulations in the Dodd-Frank financial reform law.

Effects on Consumers
As with past regulations and rulings that affect bank revenue, this settlement could cost consumers. If the merchant passes along the fee, cardholders could pay as much as 3% more when they pay with a credit card. If a cardholder carries a balance from month to month, the cardholder will also pay interest on the surcharge.

Cardholders who take advantage of credit card rewards could see dramatic cuts and changes in their reward programs. Historically, swipe fees helped pay for credit card reward programs and a reduction in swipe fee revenue could eventually lead to changes in credit card rewards. Even if the cardholder paid off the balance each month and never paid interest, the credit card issuer still made money from the swipe fee every time the card was used.

Banks offered rewards with debit card usage, but most banks ended their debit rewards program as soon as the interchange fee cuts took place on debit cards. Credit card rewards are too popular to discontinue, but issuers will try to find ways to make up for this lost revenue. This settlement comes at a time when card issuers are giving record rewards to attract customers with the highest credit scores. But those days may be over.

There is a chance that merchants may offer a discount to customers who pay with cash. Gas stations already do this.

Ideally, retailers will find a way to pass some of the credit card swipe fee savings to consumers. However, the debit card swipe fee was cut in half almost a year ago, and we haven't seen much evidence that the savings trickled down to consumers.

As an African folk saying goes, "When two elephants fight in the grass, it's the grass that suffers."

--By Bill Hardekopf

Bill Hardekopf is chief executive of, which compares and rates more than 1,000 credit cards. He is the co-author of "The Credit Card Guidebook."

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