Key Points

• Visa and Mastercard reached a $38 billion settlement lowering interchange fees by 0.1% over five years.
• Merchants can now reject premium rewards cards like Visa Infinite and World Elite Mastercard products.
• Your favorite rewards cards might face acceptance issues at some stores, but immediate changes are unlikely.

Introduction

Visa and Mastercard just announced a settlement that ends 20 years of litigation with merchants over interchange fees. While the immediate 0.1% fee reduction sounds minor, the real story is what merchants can now do: reject your premium rewards cards or add surcharges when you use them.

If you're carrying cards like the Chase Sapphire Reserve or Capital One Venture X, this settlement could eventually change where and how you earn rewards. Here's what happened, what it means for your wallet, and why you shouldn't panic just yet.

What the Settlement Actually Changes

The settlement resolves a lawsuit dating back to 2005, when merchants accused Visa, Mastercard, and major banks of anti-competitive behavior around interchange fees. These "swipe fees" are what merchants pay every time you use a credit card, typically ranging from 2% to 2.5% of your purchase.

The fee reduction: Interchange rates will drop by an average of 0.1 percentage points over the next five years. Standard consumer cards will be capped at 1.25% for eight years, which represents a 25% reduction from typical rates.

The bigger change: Merchants can now choose which types of Visa and Mastercard products they accept. Previously, if a store accepted any Visa card, they had to accept all Visa cards. Now they can decline premium products that carry higher interchange fees.

This means a merchant could accept your basic Chase Freedom card but reject your Chase Sapphire Reserve. They could take standard Visa cards but decline Visa Infinite products. The same goes for Mastercard - stores might accept regular Mastercards while refusing World Elite Mastercard products.

Merchants also gain more flexibility to add surcharges up to 3% when customers pay with credit cards, particularly premium cards with higher interchange fees.

Why Premium Rewards Cards Cost Merchants More

The reason merchants might reject premium cards comes down to interchange fees. Your rewards don't come from thin air - they're funded primarily by the higher fees merchants pay when you use premium cards.

A basic credit card might charge merchants 1.5% per transaction. A premium card like the Chase Sapphire Reserve with its generous travel credits and lounge access might charge 2.5% or more. That difference pays for your 3x points on dining, Priority Pass membership, and trip delay protection.

Banks issue premium cards with higher interchange rates because they offer better rewards and benefits. Visa Infinite and World Elite Mastercard products command the highest fees because they provide the most valuable perks. Cards like the Capital One Venture X, Citi Strata Premier, and American Express Platinum all fall into these premium categories.

Will Merchants Actually Reject Your Cards?

This is the critical question, and the answer is complicated. Merchants technically can reject premium cards now, but most probably won't - at least not immediately.

Why merchants might not discriminate:

• Most merchants can't easily identify premium cards at checkout. Your Chase Sapphire Reserve looks similar to a basic Chase Visa to most payment terminals.
• Large retailers in major cities know their customers use premium cards extensively. Rejecting these cards means losing sales.
• Customer experience matters. Telling someone their card is rejected after a meal or with a full cart creates friction that drives people to competitors.
• Premium card users tend to spend more. Merchants don't want to lose high-value customers.

Where you might see changes:

• Small businesses in smaller markets with fewer premium cardholders
• Merchants with tight profit margins where interchange fees significantly impact their bottom line
• Businesses that already add credit card surcharges
• Online retailers who can more easily detect card types

The more realistic scenario isn't merchants rejecting premium cards outright. Instead, we'll likely see more businesses adding surcharges when you pay with any credit card. This already happens at gas stations, some restaurants, and various small businesses.

What This Means for Your Points Strategy

Don't rush to cancel your premium cards or change your entire strategy. The settlement still requires court approval, and changes won't happen overnight. Plus, previous settlement attempts failed judicial review, so this deal isn't guaranteed.

Short-term outlook: Nothing changes immediately. Keep earning points with your favorite cards as you have been. The best credit card bonuses remain just as valuable today as they were last week.

Medium-term considerations: If merchants begin widespread rejection of premium cards or surcharging, banks might adjust their offerings. This could mean:

• Reduced sign-up bonuses to offset lower interchange revenue
• Lower earning rates on bonus categories
• Higher annual fees to maintain current benefits
• More innovative benefits that don't rely solely on interchange fees

What you should do now:

1. Keep your premium cards active if the benefits justify the annual fees
2. Consider having a no-annual-fee card like the Chase Freedom Unlimited or Citi Double Cash as a backup
3. Monitor whether merchants in your area start rejecting certain cards
4. Don't make drastic changes based on a settlement that might not even take effect

The reality is that premium rewards cards have survived regulation before. When the Durbin Amendment capped debit card interchange fees in 2010, many predicted the death of rewards. Instead, credit card rewards became even more lucrative as banks shifted focus.

Airlines and Hotels May Feel the Impact Too

Here's an angle most people aren't discussing: U.S. airlines now earn more from co-branded credit card agreements than from flying passengers. The revenue banks pay airlines for cards like the Chase Southwest cards or American Airlines credit cards subsidizes ticket prices.

If banks earn less from interchange fees, they might pay airlines less for partnerships. This could lead to:

• Higher airfares as airlines lose credit card subsidy income
• Less generous airline co-brand cards
• Devaluation of airline miles programs
• Reduced elite status benefits funded by card spending

The same logic applies to hotel programs. Cards like the Marriott Bonvoy cards and Hilton credit cards drive significant revenue to hotel chains. Reduced interchange income could ripple through the entire loyalty program ecosystem.

Industry Opposition and What Comes Next

The National Retail Federation called the settlement "window dressing," arguing the 0.1% reduction doesn't address years of rising interchange fees. The Merchants Payments Coalition echoed this sentiment, noting that merchants still can't negotiate rates with individual banks.

These trade groups have opposed every settlement proposal so far. They want deeper cuts and more fundamental changes to how interchange fees work. The European Union capped credit card interchange at 0.3% back in 2015, and merchant groups want similar regulation in the U.S.

U.S. District Judge Margo Brodie must approve the settlement. She rejected a previous $30 billion proposal in June 2024, calling the merchant savings "paltry" and criticizing the "Honor All Cards" rule that this new settlement addresses. Her approval isn't guaranteed.

Even if approved, banks and card networks have five years to implement the changes. That's a long runway for the industry to adapt, for consumer behavior to shift, and for competitive dynamics to evolve.

The Bigger Picture on Rewards Economics

This settlement represents the latest chapter in an ongoing debate about who pays for credit card rewards. The current system effectively transfers wealth from merchants and cash-paying customers to rewards card users.

When interchange fees are high, merchants raise prices for everyone to cover the cost. Cash customers and debit card users subsidize rewards for premium credit card holders. Studies suggest this adds over $1,200 annually to the average American family's costs.

Lower interchange fees could theoretically lead to lower retail prices. But history suggests merchants rarely pass savings through to consumers. After the Durbin Amendment capped debit interchange in 2010, retail prices didn't decline meaningfully.

The compromise position argues that credit card rewards create economic value beyond the direct transfer. Rewards encourage spending, which benefits merchants. Card benefits like purchase protection and extended warranties reduce fraud and disputes. Premium cards enable discretionary spending that might not otherwise occur.

Preparing for Potential Changes

While immediate panic is unwarranted, smart points enthusiasts should prepare for potential long-term changes:

Diversify your cards: Don't put all your spending on one premium card. Consider a mix of:

• One premium travel card for major benefits and transfer partners
• A no-annual-fee cash back card as a universal backup
• Category-specific cards like the Chase Freedom Flex for rotating bonuses
• A business credit card if you have a side business

Focus on transferable points: Cards that earn Chase Ultimate Rewards, American Express Membership Rewards, or Capital One miles maintain value regardless of interchange fee changes. You're building a points balance that works across multiple airlines and hotels.

Maximize current opportunities: Sign-up bonuses remain lucrative. Cards like the Chase Sapphire Preferred with 60,000 points after $4,000 spend or the American Express Gold with generous grocery and dining bonuses still offer tremendous value.

Lock in current benefits: If you've been considering a premium card, the annual fees and perks available today might not last forever. Cards like the Chase Sapphire Reserve offering $900 in annual credits could see benefit reductions if interchange revenue decreases.

Conclusion

The Visa and Mastercard settlement introduces uncertainty into the rewards card landscape, but don't overreact. The settlement requires court approval, implementation takes years, and merchants face practical barriers to rejecting premium cards.

Your strategy should be to continue earning and redeeming points as you do now while building in flexibility for potential future changes. Keep a backup card, focus on transferable points, and take advantage of current sign-up bonuses before they potentially decrease.

The credit card rewards ecosystem has proven remarkably resilient through previous regulatory challenges. While this settlement might eventually change some aspects of rewards programs, the fundamental value proposition of earning points for travel remains strong. Stay informed, stay flexible, and keep maximizing your points.

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