Small merchants had something to cheer about on Thursday as American Express joined credit card companies MasterCard and Visa in allowing small-business owners to add a surcharge for credit card purchases.

Following a settlement reached yesterday in U.S. District Court in Brooklyn, small and midsize merchants will be allowed to recoup the fee known as interchange on credit card charges for all three card brands. (Debit cards, which have little or no fees, will be exempt.)

The end of a long court battle

In August, 2012, the same court reached a settlement in a case billed as the largest class action suit in history, which returned $7.2 billion to more than 7 million merchants nationally who accept Mastercard and Visa cards. Judge John Gleeson, the same judge in both cases,  approved that settlement last week.

The American Express settlement caps about eight years of legal battles between the major credit card companies and smaller merchants.

Mitch Goldstone, chief executive of ScanMyPhotos, an online photo archiving business in Irvine, California, and the lead plaintiff in the Visa/Mastercard suit says the Amex decision is a great development.

"This is the biggest news since we started litigation in 2005," Goldstone says, adding the ability to add a surcharge levels the playing field with big box competitors whose scale is so large they do not have to charge.

Merchants may pass savings to customers

Goldstone, who has 24 employees and revenue under $5 million, says about 40% of his business is transacted with American Express cards. Goldstone says he does not have immediate plans to add a surcharge going forward, and he says he does not think other merchants will either.

Instead, Goldstone says he plans to use his ability to add a surcharge as leverage should the card brands raise interchange fees. (They temporarily lowered them as part of the agreement last year.) Goimg forward, however, he can let his customers know on his website that he will charge different prices for different kinds of cards.

Generally speaking, interchange amounts to between one percent and three percent of purchases. But interchange schedules for the card brands are complicated, sometimes resulting in voluminous differences between card types, with merchants essentially subsidizing the cost of high value rewards cards. 

Plenty of competition

Certainly low-fee payment processing alternatives like Square, Intuit's Gopayment, and Ebay's Paypal have added price competition for the card brands and the networks that process their cards. And that may also put pressure on the card brands to keep interchange low.

That in turn will be good for Goldstone and his customers.

"Ultimately any savings for my business will be passed along to my customers," Goldstone says.