Interchange fee reductions are about to take the spotlight, but this time it won’t take an act of Congress. The settlement of a lawsuit against Visa and Mastercard will lower interchange fees, and serve as a case study of the impact similar proposals would have on consumers. Unfortunately, as the Durbin Amendment has proven, interchange fee caps function as price controls, and when incentives are distorted, consumer benefits are reduced, and promises of lower costs are never delivered.
A class action suit representing individuals and merchants that used cards from the Visa or Mastercard payment networks between 2004 and 2019, alleged that Visa and Mastercard fixed interchange fees. To settle the lawsuit, Visa and Mastercard agreed to cap interchange fees at 1.25 percent, as part of the full settlement.
Interchange fees are charged whenever a debit or credit card is used at checkout and are a percentage of the total transaction price, typically 1 to 2 percent. These fees maintain both the card and fraud prevention systems.
Leah Locke is a policy analyst with the American Consumer Institute, a nonprofit education and research organization. Follow Leah on X @leahmlocke.