A recent class-action settlement between the world's largest credit card companies and millions of merchants who accept credit might alter interactions at cash registers all over the United States. It could change the way consumers think about what they carry in their wallets. 

But it is doing little to quell merchant anger over swipe fees.

The settlement, which stems from one of the biggest class-action suits in history, is awaiting approval by a federal court in Brooklyn, New York. Should it be, it would return approximately $6 billion to merchants from Visa, MasterCard, and more than a dozen issuing banks named in the suit. The settlement would also reduce interchange rates for merchants, returning an additional $1.2 billion to them through a collective fund.

What's more: It could change transactions at cash registers on Main Street. For the first time ever, it would also allow merchants to add a surcharge (likely a few-percent fee) to customers who use Visa or MasterCards for payments.

Some small-business owners say surcharges would add confusion to a struggling retail market, resulting in certain classes of very small merchants--say, gas stations--adding fees for credit card charges, while other larger merchants abstain. The settlement will also do little to shed light on the confusing pricing practices of the card networks for credit card transactions, or to cap expensive interchange rates, they say.

"This was clearly negotiated by a bunch of attorneys who don't understand how competitive the environment is for retailers," says Darin Kraetsch, chief executive and founder FlipFlop Shops, which has 70 retail locations in 27 states, and is number 426 on the 2011 Inc. 500 list. FlipFlop Shops is based in Kennesaw, Georgia.

"We would never tell a customer that they have to pay us to give us money," Kraetsch says. "It is such a slap in the face."

Kraetsch says the eight-month limit on the decrease on interchange will do little in the long run, and will probably result in credit card companies raising interchange rates again after the limit expires. About 95% of purchases made at FlipFlop Shops are paid on credit cards, he says.

"It is not in the best intertest of the retailers to charge a surcharge because of a consumer outcry," says Patricia A. Sahm, managing director of Auriemma Consulting Group, a credit card consultancy in New York. Sahm says surcharges would encourage consumers to use cash, and she notes that handling cash is not free for merchants either, and could potentially add to business costs. 

The agreement caps a seven-year dispute between banks, the card networks, and merchants, and it is the latest manifestation of a 20-year struggle over alleged anti-competitive practices. But already, experts are questioning its effectiveness.

"The merchants don't think this is going far enough, it is not only about surcharging for them, it is also about the system and what they see as collusion and price fixing and the way the system works," says Madeline Aufseeser, a senior analyst for Aite Group, a financial consultancy in Boston.

Complicating matters, 10 states--including California, Florida, New York, and Texas, which collectively account for some of largest volume of credit-card charges--strictly forbid credit card surcharges. That restriction could also create a logistical nightmare for national merchants who do businesses in those states, and who may be interested in leveraging surcharges, Aufseeser says.

The National Association of Conveniences Stores, which represents 148,000 conveniences stores in the United States with nearly $700 billion in sales annually, says the settlement will do little good for merchants, who pay about $50 billion annually in interchange fees, according to the group.

"We are expressing our displeasure and we reject the settlement; this does not do anything to fix the broken system and it could possibly make things considerably worse for retailers and their customers," Jeff Lenard, a NACS spokesman, says.

Specifically, parts of the legal agreement would limit future suits against the card networks over similar anti-competitive conduct, Lenard and other experts say. 

A spokesperson for the Electronic Payments Coaltion, an industry group of which Visa and MasterCard are members, expressed skepticism over the convenience store association's rejection of the settlement. 

"The agreement was carefully negotiated by both parties, and NACS was at the table and part of the negotiations, and why they are speaking out right now after there was an agreement raises all kinds of questions," spokesperson Trish Wexler says. She added that credit card transactions are also costly to networks and banks, so EPC believes merchants should pay a share of that.

In a statement, Noah Hanft, MasterCard's general counsel said: "Although we have strong defenses to all claims, a settlement avoids years of litigation and uncertainties that are inherent in such cases. We believe that today’s settlements should resolve all issues with the merchant community."

The settlement comes at a time when banks are struggling to regain lost revenue from caps on interchange fees for debit cards, a result of the Durbin Amendment, a part of the Dodd-Frank Reform Act. In response, many banks have added fees to consumer deposit accounts.

Similary, Visa and MasterCard might soon add more fees to merchant accounts.

"This creates perverse incentives not based on market principles, and incentives to find ways around the settlement," says Aaron McPherson, a practice director for IDC Financial Insights, of Framingham, Massachusetts.

Visa is already being investigated by the U.S. Department of Justice for adding something called a "fixed acquirer network fee" to merchant accounts this spring, McPherson says. That fee basically penalizes merchants for sending card transactions through cheaper competing networks, he says.

On the other hand, surcharging might actually create an incentive for credit card networks to drop interchange rates, says K. Craig Wildfang, partner at Robins, Kaplan, Miller & Ciresi, in Minneapolis, and one of the lead attorneys on the case.

"We have seen this in data from other countries where surcharging is permitted…that it has a depressing effect on the level of interchange fees overall," Wildfang says, adding that interchange fees fell lower in Australia after surcharging was approved there about a decade ago.

Merchants in the United States will be allowed to add a surcharge equivalent to the average interchange fee paid in the prior 12 months, Wildfang says.

At least some entrepreneurs are satisfied. Mitch Goldstone, CEO of ScanMyPhotos.com, which is based in Irvine, California, is a lead merchant in the suit. He applauds the settlement.

Goldstone says he has no plans of adding a surcharge to purchases at ScanMyPhotos.com, an online service company that only accepts credit and debit cards. Instead, he says he has already responded by cutting rates on the company's services, by 2%, his average interchange-cost per transaction.

The company, which has 17 employees, scans hard copy photos for its customers, and makes an average sale of $400. Goldstone says he helped start the suit seven years ago after getting fed up with the lack of response from the card networks over his request for lower interchange rates.

Goldstone says he is particularly pleased by a provision in the settlement, which explicitly allows merchants to organize into buying groups to negotiate better rates from Visa and Mastercard.

"I want to send a powerful message to the media and other merchants and consumers who are watching this so closely, that the lead plaintiff is being proactive and not just retaining the savings," Goldstone says.