Iowa businesses will now be allowed to reward customers for using credits cards preferred by the merchant. The Iowa Attorney General’s office has reached a settlement with MasterCard and Visa on so-called “swipe fees.”

Retailers that accept credit cards pay the card companies a small fee every time a customer uses that card at their establishment. The fees are typically higher for cards that offer rewards like airline miles or cash back. Iowa Attorney General Tom Miller says – up until now – merchants were prohibited from offering customers discounts for using credit cards with lower swipe fees.

“The fees that we’re talking about here to the credit card companies are about $35 billion dollars year,” Miller said. “So we think those fees will go down and much if not all of the reduction in fees will be passed on.” Miller says the settlement will allow businesses to offer customers incentives to use credit cards with the lower swipe fees.

“They could give you one percent off, two percent off if you use that card. They could give you some coupons, they could give you some free items, whatever they wanted to try and induce people to use the lower cost credit card,” Miller said. “The whole idea is we’re engendering some competition.”

American Express refused to enter into the settlement so Iowa has joined the Justice Department in filing a civil anti-trust lawsuit. Miller says American Express has the highest merchant swipe fees of any credit card network.