A Settlement in a 20-Year Legal Fight Could Make it Harder to Use Your Rewards Credit Card
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What is the main topic discussed in this episode?
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What major change is happening with rewards credit cards?
Got one of those rewards credit cards? Well, merchants could stop accepting them.
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.
Plus, there's a possible end to the government shutdown that has Democrats furious at defectors within their own party.
How will merchants be affected by the new credit card settlement?
And Hollywood may be struggling to bounce back after the pandemic, but IMAX is booming. It's Monday, November 10th. I'm Alex Osola for The Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today. 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. Anna Maria 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, Anna Maria, should consumers be worried that these popular credit cards won't be accepted in a lot of places?
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.
So let's back up for a second. What was this case about?
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 have 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.
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?
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, the smaller merchants might say, well, I'm going to charge you extra for that.
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