As 2025 comes to a close and the federal government re-opens, there are many payments policy issues to watch carefully, including credit card interchange and network rules, debit reform, challenges to state laws regulating interchange, and penny circulation complexities.
MDL 1720Recently, news broke of a new proposed settlement in the long-lasting merchant and card network litigation regarding interchange and network rules, MDL 1720. The proposed settlement class includes all merchants that accept Visa or Mastercard cards and would limit interchange, or swipe fees, by capping rates at very high current levels. The settlement will also allow for rules’ modifications regarding surcharging and the “Honor All Cards” rules, but it does not address network fees, a growing pain point for merchants, and it is not clear whether the settlement will bring greater competition to the industry.
MAG will host a virtual merchant-only discussion during the December Advocacy and Communications meeting. Please contact Erica Forman if you are interested in attending.
Debit Regulated Rate
Earlier this fall, merchants saw two important and conflicting decisions regarding the debit regulated rate. In North Dakota, a judge ruled in favor of Corner Post, a local store, which filed suit against the Federal Reserve. Corner Post claimed that the Federal Reserve did not follow the right methodology outlined by statute in determining the regulated rate, including several categories of costs that led to a higher rate. The Federal Reserve is appealing the decision. Shortly thereafter, a judge ruled against Linney’s Pizza in Kentucky on the same issue, reaching the opposite conclusion as the court in North Dakota, concluding that the Federal Reserve acted within its authority in setting the regulated rate. These decisions came about as the Federal Reserve is also examining comments filed on their proposed rulemaking to lower the regulated rate for debit transactions, which predated these court decisions but appears to be on indefinite hold.
Merchants have advocated for years that the Federal Reserve should lower the debit regulated rate for covered issuers, those with over $10 billion in assets. It seemed merchants were finally making headway, and now, over two years after the Federal Reserve issued its proposed rulemaking, merchants still wait for more reasonable and proportional costs for debit transactions.
State Laws Limiting Interchange Fees on Taxes and Tips
In 2024, Illinois became the first state to pass legislation barring the collection of interchange fees on taxes and tips. Various bank trade associations filed suit in federal court in Chicago to block the law as preempted by federal banking laws. The court agreed with the banks on certain issues but ruled that card networks, like Visa and Mastercard, and processors were not covered by the ruling, allowing the law to go forward. The legislature amended the law to give an additional year for compliance, and the court is now considering the issues again. The court is expected to rule by the end of the year, and the decision will likely impact activities in many other states where similar laws have been considered.
Penny Retirement and Circulation Issues
The United States has minted the last penny. Although the Trump Administration announced that the government would retire the penny earlier this year, no one anticipated how quickly circulation and shortage issues would arise. The Federal Reserve published guidance for financial institutions, and Congress has introduced legislation to address the shortage that merchants and consumers are seeing in various regions of the country. Several states and localities have laws in place regarding rounding, which complicates merchants’ ability to provide change to customers during this shortage of pennies. Merchants are urging Congress to pass a law with strong preemption of any conflicting state laws and clear rounding requirements as the penny is phased out.
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