Nothing comes for free. Credit card transactions that seem convenient for customers who do not want to pay through cash come with an interchange fee, also called a swipe fee. Every transaction that’s made through a credit card be it MasterCard or Visa, comes with a fixed swipe fee that the acquiring bank imposes on the merchant. However, the merchant passes it on to the customer, adding it to their bills. The fee can range between 2 and 2.5% and is charged to mitigate the risk associated with the delayed payments.
Recently, more than 12 million retailers filed a complaint against Visa and MasterCard regarding the Visa swipe fee settlement. They claimed that these companies set an excessively high interchange rate. As a result, Visa and MasterCard, along with some of the reputable banks in the US, will pay a whopping $6.2 billion to settle the claims with the US retailers. Keep reading to learn more about the Visa swipe fee settlement case, how to claim the settlement compensation, and the total you will receive from the case.
The Payment Card Interchange Fee lawsuit started in 2005 and has been an ongoing case since then. The case was filed by attorneys representing small business owners and other retailers who had to bear the unnecessary cost of accepting payments through credit cards. They accused some reputable banks, including Bank of America, Wells Fargo, and Citibank of working with the major card networks to set the fee ridiculously high.
Every time a customer pays through credit cards at gas stations, restaurants, and for other services, the merchant would have to incur the fee. Eventually, they had to pass it on to their customers, as a 2.5% fee for every transaction was too much for small retailers. Businesses with a small profit margin found it extremely difficult to deal with this extra processing fee.
After almost 13 years of the lawsuit, the banks and credit card networks have come to an agreement to settle it with the leading US merchants by paying between $5 and $6.
As mentioned above, the case filed by the retailers claims that these credit card companies have set the interchange fee super high to support banks. Fortunately, the case seems to be settling now that the US District Court has declared that credit card networks will settle the payment to compensate for the losses the US merchants have incurred due to the high interchange fee. Retailers can finally get compensation.
Credit card networks collectively make a considerable amount of money just from the swipe fee. In fact, it’s believed they make $50 to $60 billion from imposing the swipe fee. The lawsuit mandates these companies to pay $6.2 billion dollars for compensation and lower the swipe fee. This will help retailers save around $1.2 billion alone in credit card swipe fees. However, the $6.2 billion deal has been reduced to $5.6 billion.
To understand the case better, let’s take a look at the swipe fee, why is it charged, and how the lawsuit started.
A swipe fee or interchange fee is used to cover the cost of processing credit card payments and is billed to the merchants who accept credit cards from specific card networks. These are charged per transaction, meaning every time you use your credit card, a small percentage of the fee will be applicable.
Payment processors and card networks claim that the fee is mandatory to process credit card payments and bears the risk of potential fraud and late payments. The process is relatively straightforward. A customer hits a store, adds a product to their cart, and swipes the credit card at the machine to complete the payment.
The merchant is immediately charged a fee ranging between 1.5 and 2 percent if they have swiped the card in person and higher if they have completed the transaction online. Usually, the rates are between 2.3% and 2.5% for Visa and MasterCard for online payments. American Express might charge the same, although they haven’t disclosed the fee.
Many merchants have argued about the high processing fee and wonder what these charges are for. In response to these claims, credit card companies have said that when a customer swipes a credit card, the merchant’s account is credited immediately. However, it takes several weeks (up to a month and longer) for a credit card company to receive the payment.
While the interest accrued on this payment might cover the cost, the card networks say that these are often insufficient in meeting the expenses they bear to process late payments.
Businesses have adapted to different strategies to deal with credit card swipe fees. For example, cash discounts have made it easier for retailers and customers to keep more money. Some businesses have raised the prices for most of their products just to handle the visa fee cost, while others do not pass it on to their customers to avoid losing them.
Acquiring banks charge swipe fees to the merchants, who add this extra cost to their customers’ bills. It’s mandatory for retailers to specify the extra fee they are charging to their customers. In fact, they are supposed to put signage at the checkout counter and near the POS machine to ensure the customers know what they are paying for. Customers already pay interest on credit card payments.
On top of that, they incur 2-2.5 percent extra on paying through credit cards. These customers are highly unlikely to return to a store that repetitively charges a surcharge fee. To avoid losing customers, businesses are encouraging them to make payments through cash. They are legally allowed to do that. Some retailers even offer a cash discount, i.e. for every cash payment, they will reduce the price by a small percentage.
If the business doesn’t pass the swipe fee on to its customers, it will affect its bottom line negatively. If they are adding it to the bills, they are bearing the risk of losing their customers. Either way, the swipe fee has proven to be an excellent issue for customers and retailers.
The swipe fee settlement handles the claims about reputable card networks charging a high interchange fee. The settlement also handles allegations regarding the credit card companies preventing retailers from informing their customers about the surcharge fee. Although it’s been almost 13 years since the lawsuit was filed, the card networks agreed to settle the case for $5.3 billion in 2012.
The appeal was, however, rejected as the leading merchants in the US claimed that it was unfair. Attorneys representing retailers believed that agreeing to this settlement would mean they wouldn’t be able to file any lawsuit in the future. Besides, it would result in unfair compensation compared to the 40-50 billion dollars that a credit card company easily makes from swipe fees alone in a year.
Another swipe fee settlement was made in 2019 when the court approved $5 billion compensation, and the banks, as well as credit card networks, agreed to pay $6.24 billion. However, many leading merchants in the United States chose not to be part of the deal. The compensation value of the claim is figured out based on different factors, especially the total amount that merchants incurred in the Visa and MasterCard swipe fee.
At the end of the year 2019, a court-approved $7.25 billion in compensation was rejected by another court as it did not cover all merchants. There have been many such lawsuits filed and rejected for different reasons, until the latest Visa swipe fee settlement that is almost $900 million more than the initial $5.3 billion settlement case.
The appeals court has agreed to settle $5.6 million in a lawsuit filed by the leading US merchants who claimed that Visa and MasterCard have charged inappropriate fees in the name of interchange fees. The lawsuit involved more than 12 million retailers. However, there was ongoing confusion about who deserved the fee and who should get how much compensation. Plus, the lawyers representing these retailers would get around $523 million, which was considered way too much.
The decision was, however, not accepted by gas operators that belong to reputable oil companies, like Chevron. These gas operators claimed that they experienced heavy losses in accepting credit card payments at gas stations. While the court did understand that their allegations and concerns must be addressed in court, the professionals also believed that it shouldn’t stop other merchants from receiving the compensation they deserved.
After the Swipe Fee Settlement, every merchant who has agreed to the settlement and compensation will be banned from filing any lawsuit against these credit card companies for the next 15 years, plus five years after that. Dedicated lawyers will be committed to ensuring that no further lawsuit is filed against these organizations after the settlement of the swipe fee allegation.
All merchants who were part of the settlement case and did not opt out of it will be awarded compensation under the swipe fee settlement. Visa, MasterCard, and central banks in America have agreed to pay $5.6 billion, which will be used to compensate all claimants, pay for the lawyer fee and other court-related expenses, tax obligations, and so on.
The settlement was approved in December 2019, and the amount disbursed to each claimant will depend on various factors. This includes the attorney fees, the cost of submitting claims, and other expenses. The amount that a claimant receives will vary depending on the interchange fee that Visa and MasterCard impose between 2004 and 2019 and the transactions you have made in this duration.
The total that each merchant can claim depends on the credit card transactions they have processed between January 2004 and January 2019. The professionals will calculate the total interchange fee you have paid in this duration to figure out the amount you should receive. They will consider the data given by Defendants and use their own sources to verify your interchange fee.
Note that it will only consider the interchange fee you have paid for Visa and MasterCard transactions within the given duration. Usually, your Class Administrator will handle the calculation and estimate part. If it’s difficult for them to determine your interchange fee for the given period or the data available is insufficient, you might have to collect more data to back up your claim.
For instance, you should gather data that shows the total interchange fees you have paid, merchant discount fees, your transaction volume from 2004 and 2009, the number of credit card transactions, and so on. You can get in touch with your payment processor or merchant service provider to track these records easily. Once you have submitted the information and it’s verified by your Class Administrator, you will be entitled to receive the compensation based on the number of credit card transactions processed at your store and the total you have paid in the interchange fee.
The next big question is how do you become part of it? Remember, only merchants who file a claim against the credit card companies regarding the swipe fee settlement will be compensated. Although it has declared that Visa, MasterCard, and the top banks in the US will collectively pay a sum of $5.6 billion to settle the swipe fee case, the court has not yet released the claim forms.
There is no information regarding when the court will accept the claim forms and distribute them among Class Members. So far, we know that once these forms are available, you can access them on the website, or they will be sent to you through email. You can submit your claims either through email or physical paper. Until then, you can check out the pre-registration form, which is available at http://www.paymentcardsettlement.com/.
By choosing to be part of the Visa Swipe Fee Settlement, you agree to adhere to the terms and conditions of the settlement case. According to this agreement, you are supposed to release all claims you have against these major credit card companies and banks. You may or may not file a claim for the compensation. Simply put, once you have filed a claim, you will be restricted from claiming anything against defendants for the next 15 years, plus 5 years after that. This means you cannot issue any claim against the swipe fee settlement topic, irrespective of whether the case was discussed in court or not.
So, once the case settles, there can’t be any lawsuit against the defendants for a while. You can’t take any action against them, no matter whether you get compensated or not. If you were part of the Rule 23(b) (3) Settlement Class, your claims will be heard, and you will receive the payment, but after that, you can’t sue Visa and MasterCard for the same case.
You don’t necessarily have to be part of the settlement case. Those who choose to opt out of the case will not be entitled to receive compensation, nor will they be able to make any objections to the rule. Note that the last date to exempt yourself from the Visa Swipe Fee Settlement case was in 2019. It has already passed.
Another critical thing to note here is that if you have opted for the Rule 23(b) (3) settlement case, you can’t file any claim against the defendants individually. Your class administrator will settle your payment, i.e., if you have applied for compensation. As mentioned previously, they will evaluate your records from January 2004 to January 2019 to determine the amount you have paid so far in the interchange fee.
Based on that, they will settle your payment. However, you can’t sue Visa and MasterCard individually, especially after the case settlement. Likewise, the deadline for objections or any specific complaints regarding the case has passed.
With credit cards offering a great deal of convenience in conducting day-to-day transactions, it’s become a standard part of our lives. A merchant can’t imagine running a business successfully without including credit card payments in their accepted mode of payment.
Whether a customer completes a transaction online or buys goods in person, credit cards are the most preferred method of payment. As popular as it is, credit cards come with different fees, which can eat into your profits, thus affecting your bottom line. Sadly, most merchants pass these fees on to their customers. Let’s understand different types of credit card processing fees, when it’s charged, and how much they can cost your business.
Interchange Fee: Interchange or swipe fee, as discussed earlier, is the most common type of credit card transaction fee charged. Every time you swipe your credit card at the POS machine or make payment online, you will be charged an interchange fee. This usually varies depending on the industry you operate in.
Usually, the interchange fee is higher in online payments compared to in-person transactions. That’s solely because the risk is higher in online transactions.
Payment Processor: The interchange fee goes straight to the credit card network, which means the processor doesn’t have a way to make money for credit card transactions.
That’s why they charge a payment processing fee, which varies from business to business. It depends on the size and volume of transactions you process regularly. They might charge a monthly fee or per-transaction basis.
Assessment Fees: Finally, the assessment fee is charged on a monthly basis based on the volume of sales you have made through specific credit cards. This fee is paid to different credit cards and it goes straight to the credit card network.
The cost of processing credit card payments can vary depending on the payment processor you choose, monthly sale volume, average size of transactions, and other factors. Your risk factor might also play a role here. Merchant service providers usually charge a high interchange and payment processing fee to businesses deemed as high-risk.
If you are involved in any service that has an ongoing controversy in your nation or is associated with legal restrictions, you will fall into the high-risk business. It’s hard to find a payment processor who’s willing to qualify you for a reasonable credit card processing fee.
Interchange fee comes with interchange plus fee, which can be $0.50 per transaction. Some credit card networks simplify these fees by combining them into a single transaction fee. This is more common with PayPal and Stripe.
Recently, Visa reduced its surcharge fee from 4% to 3%. Now, payment processors cannot charge more than 3% to merchants, even if that means they bear a loss in processing credit card payments. These changes, while favoring customers, can be a nightmare for payment processors who struggle to handle credit card transactions.
With the court approving the settlement at $5.6 billion, merchants are looking forward to getting compensated for the interchange fee they have paid in the last decade. It’s believed that merchants have lost billions in interchange fees and it has significantly affected their bottom line. The case was first registered in 2005 and in 2012, the credit card companies proposed to settle it for $5.3 billion.
Finally, the deal of $6.2 billion has been lowered to $5.6 and it will be settled soon. The date for opting in or out of the settlement rule has already passed and everyone who has opted for the case will no longer be able to file any lawsuit against the defendants in the next 15 years.
We have already mentioned the procedure for filing a claim and submitting your documents. Although the claim form has not been released yet, once it is released, you can fill out the form and seek compensation for the interchange fee.