A Settlement in a 20-Year Legal Fight Could Make it Harder to Use Your Rewards Credit Card

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Alex Ossola (0:33)

Got one of those rewards credit cards? Well, merchants could stop accepting them.

AnnaMaria Andriotis (0:38)

We're definitely entering a new era of credit card rules that could impact most, the vast majority of credit cards with rewards programs out there.

Alex Ossola (0:52)

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Do you have one of those premium rewards cards like the JPMorgan Chase Sapphire Reserve? Well, stores could soon be rejecting them. That's because of a settlement between merchants and Visa and Mastercard in a legal fight over credit card swipe fees that dates back two decades. AnnaMaria Andriotis, who covers the banking sector for the journal, is here to talk about what this deal means for merchants, banks, and the rest of us. So, AnnaMaria, should consumers be worried that these popular credit cards won't be accepted in a lot of places?

AnnaMaria Andriotis (1:48)

Possibly. And I say that because it's a complicated question. We're definitely entering a new era of credit card rules that could impact most, the vast majority of credit cards with rewards programs out there.

Alex Ossola (2:07)

So, let's back up for a second. What was this case about?

AnnaMaria Andriotis (2:11)

Much of this comes down to interchange fees. So, every time that consumers pay with a credit card, the merchant pays the bank that issued your credit card what's called an interchange fee. These fees vary, but they're often between 2% to 2.5% of the purchase price. Merchants pay tens of billions of dollars in these fees every year. These costs have been rising so much for merchants because more and more consumers has switched from cash and debit cards to credit cards. Two, it's because more and more people are shopping with rewards cards. And it's because credit cards with rewards have higher interchange fees than credit cards that don't have rewards programs.

Alex Ossola (3:05)

So this legal settlement has enabled merchants to reject some of these cards if they want to, but have they said that they won't take rewards cards?

AnnaMaria Andriotis (3:14)

For decades, Visa and Mastercard have had what they call an honor all cards rule. What this rule has said is, merchant, if you accept one Visa credit card, you have to accept all Visa credit cards. What this settlement has done, if it's approved by the court, is it essentially says to merchants, okay, we're creating three buckets of acceptance for credit cards. But the moment that you choose to accept one rewards credit card that falls into that rewards bucket, you have to accept all of those credit cards. So here's what consumers can expect. There is a possibility that merchants, when you pull out to pay with a rewards credit card, they'll say no. The chances of merchants doing that are with big merchants, not very high because what it could result in would be merchants seeing their sales fall potentially in a pretty substantial way. It will be likely that consumers will see this with smaller merchants, small businesses. Think of like, you know, the bagel store, the hair salon, the stuff that's just in your neighborhood. Another thing that consumers could be seeing, rather than rejecting the credit card outright, the merchants, in particular smaller merchants, might say, well, I'm going to charge you extra for that.

Alex Ossola (4:34)

You mentioned banks. How have they responded to this move?

AnnaMaria Andriotis (4:38)

It does not benefit banks when something like this happened. This honor roll cards rule basically said to the banks, guys, don't worry about it. You don't have to compete against each other. You don't have to have your own card products competing against each other, because the moment a merchant accepts one of a visa's credit cards, they have to accept all of them, right? That's not the case anymore. So it's going to make it a little bit tougher right now. It potentially starts to create a little bit more of a real competitive environment for banks when it comes to merchant acceptance.