Credit Cards and New Rules: What We Know So Far

The Great Credit Card Squeeze: Are Rewards on the Chopping Block?

Visa and Mastercard are at it again, proposing yet another settlement in the never-ending saga of swipe fee lawsuits. Merchants have been complaining about these interchange fees for decades, arguing that the payment networks are essentially price-gouging them. This new settlement, like the ones before it, promises some relief, but also introduces a potentially seismic shift in how we use our credit cards. The core of the issue? "Honor all cards." Currently, if a merchant accepts Visa, they have to accept all Visa cards. Same goes for Mastercard. But this settlement proposes breaking that rule, allowing merchants to pick and choose which types of cards they'll accept: commercial, standard (no rewards), or premium (rewards-earning).

The stated goal is to give smaller merchants more flexibility and lower costs. Mastercard, in its official statement, argues this will lead to "more acceptance choices, reduced costs and simplified rules." Sounds good, right? But let's dig into the potential fallout. If a local coffee shop decides to ditch premium cards, suddenly that cashback card you rely on is useless there. Or worse, the annual-fee travel card you carefully selected for its perks gets declined.

The retailers aren't exactly thrilled either. The National Retail Federation called the proposal "inadequate," with Stephanie Martz, their chief administrative officer, stating that the swipe fee reduction "doesn’t begin to go far enough." Jennifer Hatcher of the Merchant Payments Coalition piled on, noting that 85% of cards issued today are rewards cards, leaving merchants with little real choice. So, a settlement designed to offer choice might actually reinforce the status quo (or at least, that's the fear).

Here's where it gets interesting, and where I start to scratch my head. The article mentions some major banks are also unhappy about the potential end of "honor all cards," according to The Wall Street Journal. Why? Because they know that if merchants start rejecting premium cards, the value proposition of those cards plummets. Fewer rewards earned, fewer perks used, fewer reasons to pay that annual fee. And this is the part that I find genuinely puzzling. Are the banks fighting to protect merchants from high fees, or are they fighting to protect their own lucrative rewards programs?

The article also points to the Credit Card Competition Act, which aims to lower interchange costs for merchants. But that legislation has been stalled for years. So, what's really going on here? Are we seeing a genuine effort to reform a broken system, or just a complex game of chess between banks, payment networks, and retailers, with consumers as pawns?

Let's look at this from the merchant's perspective for a minute. A dental practice considering surcharging patients’ credit cards might save on payment processing fees. But Best Card, CDA’s Endorsed Service partner for payment processing, estimates that attracting a new patient costs a practice $150-$300, and that patient could generate $4,500 in revenue over time. Under a 3% surcharge model, a patient paying $250 would incur a $7.50 fee. Research indicates that 55% to 75% of customers are less likely to return to a business that imposes surcharges. So, the surcharge (theoretically saving the merchant money) could drive away customers (costing the merchant a lot more money). Surcharging patients’ credit cards: Decisions for dental practices

And what about the consumer? Are they really going to switch dentists over a $7.50 fee? Maybe. Maybe not. But it highlights a fundamental problem: these fees are opaque and confusing. Consumers don't see the interchange fees, they just see the final price. Surcharges make those fees visible, but they also create friction at the point of sale. It's like slapping a tax on your purchase at the last second.

The Rewards Era Might Be Overstated