Texas restaurant association warns credit card fee deal could hurt small businesses, consumers

EL PASO, Texas (KVIA) -- A proposed settlement in a decades-long lawsuit against Visa and Mastercard is being promoted as financial relief for businesses, but the Texas Restaurant Association says the plan could ultimately hurt small businesses and the customers who support them.

Kelsey Erickson Streufert, the association’s chief public affairs officer, said the settlement stems from a class-action lawsuit that has been tied up in the courts for 20 years, and noted that most major business groups, including restaurant and retail organizations, are not part of the case.

“The credit card companies are making it sound like this proposed settlement is a huge gift,” Streufert said. “But there's a lot in the fine print... that they're not sharing.”

Streufert said swipe fees, the charges businesses pay when customers use credit cards, typically run about 3 to 3.5 percent per transaction, and because they are calculated as a percentage of the bill, those costs rise as prices rise.

According to Streufert, Americans pay swipe fees at levels roughly eight times higher than consumers in Europe, and countries like Canada have imposed caps that keep costs lower.

Streufert said the proposed settlement offers only modest savings and excludes many popular rewards cards, which carry some of the highest fees, and she said the agreement would prevent all merchants, even those not involved in the lawsuit, from filing new legal challenges for at least seven years.

“They want to be able to go to the Texas Capitol and Washington, D.C., and say, ‘Don’t worry about this… nothing to see here,’” she said. “That would be a real disservice… to small businesses and consumers.”

With about 90 percent of restaurants operating as small businesses, Streufert said owners have virtually no negotiating power with credit card companies.

“They can’t call Mastercard and say, ‘I need you to lower that 3.5% to 3.4%,’” she said. “Their options are take the rates that are offered or don’t use credit cards, in which case you’re losing about 85% of your customers.”

With average restaurant profit margins around 5 percent, she added it is not uncommon for credit card companies to make “as much, if not more money” on a sale than the restaurant itself.

Some restaurants have turned to cash or debit discounts to offset costs, a practice seen in cities like El Paso.

Streufert said cash and debit transactions come with lower fees and keep more money circulating locally instead of going to large financial institutions.

“Consider paying with cash or debit,” she said. “Your investment in your local community is actually staying local. A big chunk of it isn’t being shipped off to Wall Street.”

Debit card fees are capped by federal regulation, and Streufert said regulators are now considering lowering those caps even further because processing costs have decreased.

Streufert said Texas has taken a leading role in the national debate, supporting the Credit Card Competition Act in Washington, which aims to increase competition in the credit card market.

One of the bill’s sponsors is Rep. Lance Gooden (R-Texas). Texas lawmakers also discussed swipe-fee legislation during the last legislative session, and while those efforts were unsuccessful, Streufert said the association plans to continue pushing the issue.

With Thanksgiving week, Black Friday and Small Business Saturday underway, Streufert said the timing underscores how processing fees affect both spending and local economies.

She said consumers have little insight into how fees are calculated, whether they insert a chip card, tap to pay or use services like Apple Pay, and she said the lack of transparency continues to drive up costs.

"Texans are really looking to support their local businesses this holiday season,” she said. “We’re so grateful for that… but to the extent that you’re able, consider how you pay.”

Streufert said the association wants a more transparent and competitive system.

“Restaurants understand there’s going to be a cost,” she said. “But it should be a competitive market, just like the one we have to operate in.”

The proposed settlement is still pending court approval.