Visa Inc, MasterCard Inc and banks that issue their credit cards have agreed to a $7.25 billion settlement with U.S. retailers in a lawsuit over the fixing of credit and debit card fees in what could be the largest antitrust settlement in U.S. history.

The settlement, if approved, will involve a payment to a class of stores of $6 billion from Visa, MasterCard and more than a dozen of the country's largest banks which issue the companies' cards. The card companies have also agreed to reduce swipe fees by the equivalent of 10 basis points for eight months for a total consideration to stores valued at about $1.2 billion.

Although this settlement is a huge amount, it is a small fraction of the $50 billion in inter-change fees paid each year by U.S. retailers, the real breakthrough is that the deal calls for merchants to be allowed to:

1. start charging customers extra for using certain credit cards in an effort to steer them toward cheaper forms of payment
2. negotiate collectively over interchange fees.

Merchants would also be required to disclose information about card fees to customers, and credit card surcharges would be subject to a cap, according to the settlement papers. Surcharge rules would not affect the 10 states that currently prohibit that practice, which include California, New York and Texas.

Not everyone was pleased with the proposed settlement: the National Association of Convenience Stores, rejected the settlement saying the settlement fails to introduce competition and transparency; it actually provides Visa and MasterCard with the tools to continue to shield swipe fees from market forces.

---

For this settlement to make a significant difference, the merchants will have to promote debit cards hard and they'll need to exploit their new collective bargaining power. It'll be difficult, the banks and the card companies have been at it for a long time and know all the tricks in protecting interchange.