Visa and Mastercard drop a card rule, but shops may not use it

Visa and Mastercard have agreed to drop the rule that forces shops to accept every card they issue. The catch: merchants may not use the new freedom. Turning away certain cards could annoy customers and cost shops bigger sales. The change is part of a settlement that would end 20 years of lawsuits by merchants.

What changed

Under the old "honor all cards" rule, a shop that takes one Visa card must take all Visa cards. The same goes for Mastercard. That means shops must accept premium cards, which cost them higher fees on each sale, as well as standard cards, including debit cards, which cost less.

Without the rule, a restaurant or store could in theory accept some Visa or Mastercard cards but not others. Shops would also get more room to add surcharges, which are extra charges passed on to the customer, when a shopper hands over a pricier card.

Why shops may not use it

Dan Stiel is a former card industry executive who now advises merchants. He points to two problems with picking and choosing cards.

• It is a bad checkout experience, with people digging through wallets while others wait.
• Premium card sales are usually worth the higher fees because the purchases tend to be bigger.

Stiel described a driver in an expensive car filling up on premium gas with an elite credit card. Compared with a debit card customer who buys less, he said, that sale is "exponentially more profitable." He called dropping the rule an "empty benefit."

What American Express thinks

American Express is not part of the lawsuits, but its CEO, Stephen Squeri, was asked about the change on a webcast with analysts. His first response was "Good luck." He said it will be hard for merchants to treat cards differently and predicted "consumer outrage" if stores start rejecting some cards.

What happens next

A federal judge still has to give final approval to the settlement. Some merchants oppose it. They say it falls short of what they expected and that ending the rule would be essentially meaningless. It is not yet known whether any shops will actually start refusing certain cards.

For business owners, the practical point is simple. Having the option is not the same as it being a good idea. Think hard before changing which cards your shop accepts.