Federal Reserve Appeals Ruling Over Swipe Fee Caps

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Last week, the Federal Reserve appealed the July ruling by a U.S. district court that found the cap set by the Federal Reserve on debit card swipe fees was too high and did not follow Congress’ intent when it implemented swipe fee reforms required by the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Fed had imposed a swipe fee cap of $0.21, but the judge’s decision was expected to force the Fed to lower swipe fee rates even more.

“We are very disappointed to see the Fed giving in to the banks,” said J. Craig Shearman, vice president for government affairs public relations for the National Retail Federation, in a statement. “The facts are very clear that the Fed set the cap far higher than intended by Congress, and the court has insisted that the mistake be fixed as soon as possible. Instead, the Fed has taken a position that will drag this out while retailers and their customers continue to pay billions of dollars in inflated fees that harm that U.S. economy. We want to see this case resolved today, not next year, so these fees can finally be brought under control.”

The lawsuit challenging the Fed’s cap on swipe fees was brought by the National Retail Federation (NRF), the Food Marketing Institute (FMI), the National Association of Convenience Stores (NACS), and two retailers in November 2011. The groups argued that the Federal Reserve adopted a “flawed cap” on debit card swipe fees, which allowed big banks to continue charging unjustifiably high fees and discouraged price competition among credit card networks.

Sen. Dick Durbin (D-IL), the amendment’s sponsor, said that the July court ruling was “a victory for consumers and small business around the country and will lead to lower interchange rates for billions of debit card transactions each year. The Fed’s 2011 decision to bend to the lobbying by the big banks and card giants cost small business and consumers tens of billions of dollars and did not do enough to rein in the anti-competitive, anti-consumer practices of Visa and MasterCard.”

Under the Durbin amendment, the Federal Reserve was given the authority to develop regulations to ensure that swipe fees imposed on debit card transactions are proportional to the cost incurred in processing the transactions. The final agreement allowed the Federal Reserve to take the fraud prevention costs of banks into consideration.