Visa, Mastercard on the hot seat

Visa and Mastercard are planning major adjustments to interchange rates come April 1, and Senator Richard Durbin, D-Ill., whose name is practically synonymous with federal regulation of debit card interchange, is crying foul. Any planned increases in interchange rates could foil the economic recovery, Sen. Durbin has said.

The brouhaha comes on the heels of news that the financial software company Intuit is taking Visa and Mastercard to court, alleging that interchange pricing models used by the two payments companies amount to unlawful price fixing, with rates set without regard to costs. In a lawsuit filed in Federal District Court for the Northern District of California, Intuit said it has paid "billions of dollars" in interchange fees over the past 17 years.

This is not the first time Visa and Mastercard interchange rate setting has been challenged in court, but the Intuit challenge is noteworthy because it appears to be the first such action taken against the card brands by an ISO or a payment facilitator. Intuit, in addition to being a card-accepting business, acts as an ISO and a payfac through service offerings like Quickbooks, an accounting package used by millions of small businesses.

Intuit's lawsuit also alleges that the card brands are skirting the intent of the Durbin Amendment when it comes to debit card routing. Debit card routing has been a hot button issue with many merchants who complain that Mastercard, Visa and large bank issuers of debit cards conspire to keep merchants from routing online debit card payments through smaller, less costly debit card networks, like NYCE and Shazam.

Last fall, Sen. Durbin sent a letter to Federal Reserve Board Chairman Jerome Powell requesting a Fed investigation of these allegations, although there yet has been any word out of the Fed addressing that request. The Fed wrote the regulations implementing the Durbin Amendment and shares enforcement responsibility with other bank regulators and the Consumer Financial Protection Bureau.

Major changes to interchange, April 1

Visa and Mastercard had planned major changes to credit and debit interchange rates last April, but put those plans on hold due to the COVID-19 pandemic.

Last month, the card companies began informing acquirers and ISOs of a litany of planned changes that could make card acceptance more expensive for several categories of transactions, and reductions in some others.

Neither Mastercard nor Visa has yet to officially release new interchange rate tables, however, a copy of proposed changes, obtained by The Green Sheet, indicates increases are planned for both percent and unit fees assessed on both rewards and non-rewards credit, debit and prepaid cards. Most of the biggest hikes have been proposed by Visa, and impact online credit card payments. Here are 10 of the proposed changes:

• Retail card-not-present credit card transactions under the Visa CPS program appear to be set for the biggest change, jumping from 1.35 percent plus 5 cents to 2.04 percent plus 10 cents.
• Visa Non-Qualified consumer credit—a catchall pricing tier applied to Visa credit cards that can't be correctly identified at the POS, as well as to certain foreign and rewards cards – would jump from an assessed 2.70 percent plus 10-cents to 3.15 percent plus 10 cents.
• The Visa Signature Preferred rate for CNP transactions would increase from 2.40 percent plus 10-cents to 2.50 percent plus 10 cents.
• Mastercard Convenience Purchase Base—assessed card-present transactions at fast food, convenience store, movie theaters and taxi cab services—would jump from 2.00 percent to 2.30 percent plus 4 cents.
• Visa CPS Restaurant transactions—those paid using non-rewards consumer credit cards – would be repriced at 2.10 percent. Currently restaurants pay 1.54 percent plus 10 cents for these transactions.
• Mastercard's base rate for consumer credit cards used at restaurants would drop from 2.20 percent plus 10 cents to 2.00 percent plus a dime.
• Mastercard Merit 1—assessed common online and keyed transactions – would rise from 2.05 percent plus 10 cents to 2.20 percent plus a dime.
• Mastercard Merit 3 (Base)—generally considered the lowest qualified rate from in-person consumer credit card payments—is slated to increase from 1.77 percent plus 10 cents to 1.90 percent plus 10 cents.
• Healthcare payments using Visa Rewards consumer credit cards would drop from 1.65 percent plus a dime to 1.43 percent plus a nickel.
• Mastercard World Elite consumer credit card transactions would cost 2.60 percent plus 2 cents; those transactions currently are priced at 2.50 percent plus 10 cents.

Sen. Durbin balks

Sen. Durbin, who serves as majority whip in the Senate and chairs the Senate Judiciary Committee, last week wrote the CEOs of Mastercard and Visa urging them to put the brakes on planned rate hikes. Also signing the March 3, 2021, letter was Representative Peter Welch, D-Vt. Referring to Feb. 24 article in the Wall Street Journal referencing proposed interchange rate hikes, the two lawmakers describe the plan as "a mistake," noting that proposed increases would be a burden for online merchants at a time when more consumers are shopping online.

"Just as increased vaccination efforts start to give our Main Street businesses hope for a summer reopening, your companies propose slamming struggling merchants, and by extension consumers, with fee increases. Raising your fees would undermine efforts to help the economy recover and further reduce Americans' purchasing power," the letter argued. "We urge you to call off these planned fee increases. Our nation is still reeling from the ongoing pandemic. And your fees are more than high enough already. This is not a time to take advantage of your position to squeeze more dollars out of your fellow Americans."

As Senate Majority Whip, Sen. Durbin is one of the most powerful lawmakers in that chamber, playing a pivotal role in determining what legislation gets passed. The Senate Judiciary Committee, which he heads, has jurisdiction over the Department of Justice, which has taken Visa and Mastercard to task in the past over alleged violations of federal anti-trust laws. In January, Visa dropped its bid to acquire the data aggregation giant Plaid after DoJ challenged the acquisition on anti-trust grounds.

The Green Sheet reached out to both Mastercard and Visa for a comment on Sen. Durbin's letter, but neither company had responded as of press time.

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