The Price of Peace in the Swipe-Fee Wars
After 21 years, two failed settlements, and enough economic testimony to qualify as its own industry, the great interchange-fee war may finally be nearing a cease-fire. The terms are imperfect, and the case never had much economic merit. Even so, the proposed settlement may offer the best available escape from a dispute whose legislative sequels could do considerably more damage.
Last month, Judge Brian Cogan of the U.S. District Court for the Eastern District of New York gave preliminary approval to the third attempted settlement in the two-decade antitrust fight between merchants and payment networks. In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, the sprawling multidistrict case filed in 2005, has already produced two rejected settlements, one 2nd U.S. Circuit Court of Appeals vacatur, a $5.54 billion damages fund, and perhaps more economist hours than any private antitrust case in American history.
The latest agreement, announced in November and valued by court-appointed experts at roughly $38 billion through 2031, would cut average credit-card interchange fees by 10 basis points for five years. A basis point is one-hundredth of a percentage point. The deal also would cap fees on standard consumer credit cards at 1.25% for eight years, a reduction of more than 25%, and freeze posted fees at their March 2025 levels.
The most consequential change concerns the “honor-all-cards” rule, which generally requires merchants that accept a network’s cards to accept all cards in that category. The settlement would divide acceptance into three groups—commercial, premium consumer, and standard consumer—and allow merchants to accept or reject each group separately. It also would expand merchants’ ability to impose surcharges on credit-card transactions.
Big-box retailers remain unimpressed. The National Retail Federation and the Merchants Payments Coalition oppose the deal, arguing that merchants would still pay too much, especially on rewards cards. Some analysts expect appeals that could delay final resolution until 2029.
That would be a pity. The settlement would distort the economics of card payments, and the litigation beneath it remains highly dubious. Still, it would end a case that has consumed more than two decades. It also compares favorably with the legislative “solutions” promoted by large retailers, including state efforts to exempt taxes and tips from interchange fees and the preposterously named federal Credit Card Competition Act.