Antitrust Litigation May Result in Lower Credit Card Transaction Fees
The large antitrust litigation being brought against Visa, MasterCard and a slew of large banks on the behalf of millions of merchants may end in a settlement that one analyst is projecting could also cause a reduction in credit card processing fees by as much as 33 percent for up to one year.
Jason Kupferberg of Jefferies Group Inc. is expecting a settlement before the case is to be taken before the U.S. District Court for the Eastern District of New York later September of this year. Kepferberg estimates the settlement to be between $5 billion to $15 billion of which Visa will be responsible for 67 percent and MasterCard the remaining 33 percent.
The litigation is being drawn on the behalf of larger retailers including Kroger Co. and Safeway, Inc. among many others for alleged price fixing on transaction fees between the two processing giants.
Visa has already set aside $4.3 billion in litigation escrow, $2.7 billion of which is an “uncommitted balance” according to the Securities and Exchange Commission.
Banks have recently been scrambling to find new avenues of revenue after the Durbin Amendment of the Dodd-Frank Act effectively capped debit card transaction fees at 21 cents last year. Since then, banks have been raising credit card transaction fees in an effort to recoup some of the estimated $6 billion annual losses.
Credit card issuers have also been boosting card rewards to incentivize charging over the less lucrative debit transactions, much to the chagrin of business owners whose customers often swipe their credit cards for small purchases and have consequently been experiencing a loss in profits. This has caused some retailers to start enforcing or strongly encouraging minimum purchase policies for card transactions in states that haven’t passed laws prohibiting such practices.