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MasterCard and Visa’s $7.2 billion antitrust settlement with 12 million retailers in the United States has been struck down by a federal court. The retailers had accused the card payment networks of overcharging interchange fees with banks while using credit and debit cards (read the full order here).

The court noted that the settlement deal was unfair to retailers who would not get any benefit at all. The litigation was brought forward in 2006 and plaintiffs include Amazon.com, WalMart and CostCo. Accordingly, the deal will have to be renegotiated or go to trial, a Reuters report added. It also said that the negotiations on fee structure is back on the table. The court also decertified the litigation as a class action suit.

In Canada, WalMart said it would stop accepting Visa cards in its stores in Ontario and eventually extend the ban to other states in the country, as indicated by this Bloomberg report. It added that its Canada unit pays more than $100 million annually in credit card fees

The allegations

Credit cards typically have a different interchange fees according to different product levels (Gold, Platinum cards etc). Higher cards in the portfolio attract lesser interchange fees that merchants have to pay. In the US, MasterCard and Visa have a “honor-all-cards” rule regardless of the difference in interchange fee.

“Multiple rules prohibit merchants from influencing customers to use one type of payment over another, such as cash rather than credit, or a credit card with a lower interchange fee.  These “anti‐steering” rules include the “no‐surcharge” and “no‐discount” rules, which prohibit merchants from charging different prices at the point of sale depending on the means of payment,” the plaintiffs said.

The plaintiffs alleged that these Visa and MasterCard network rules, working in tandem, allowed the issuing banks to impose an artificially inflated interchange fee that merchants had to accept.

Fees in India

In India, the Reserve Bank of India has capped the interchange fee or merchant discount rate (MDR) at 0.75% for transactions up to Rs 2,000 and 1% for transactions above Rs 2,000. For credit cards, the MDR varies from the issuing banks, but typically there is a charge of 1.6% on non-premium cards and 2.5% for premium cards.

In March, the government  proposed to rationalize MDR on card transactions and formulate a differentiated MDR framework for some key transaction segments, such as utility payments and railway ticketing.