Ruling Demanding Lower Debit Card Interchange Fees Overturned

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On March 21, in what is being hailed as a victory for the banking industry, the United States Court of Appeals for the District of Columbia overturned a July 2013 ruling by a U.S. district court that ordered the Federal Reserve to rewrite rules on debit card swipe fees under the Dodd-Frank Act’s Durbin Amendment. The ruling to reinstate the Fed reforms drew the ire of retail groups as well as Sen. Richard Durbin (D-IL), but it was lauded by the banking industry, according to media reports.

The appellate court’s decision “is a giveaway to the nation’s most powerful banks and a blow to consumers and small businesses across America,” Sen. Durbin said in a statement on Friday, March 21. “The court completely ignored how the Federal Reserve’s swipe-fee rule allowed Visa and MasterCard to dramatically increase debit swipe fees on many small businesses, contrary to Congress’s clear language and intent.”

In July 2013, a U.S. district court found that the cap set by the Federal Reserve on debit card swipe fees was too high and did not follow Congress’s intent when it implemented swipe fee reforms required by the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In August 2013, however, the Fed appealed the district ruling.

“The Fed ignored congressional intent and worked to shield debit card companies and big banks. A self-described victory for the banks usually results in higher costs for consumers,” Mallory Duncan, general counsel for the National Retail Federation (NRF), told the Washington Post.

Duncan noted to the New York Times that for most retailers, the cap of $0.21 is still “an improvement…. It’s not as much of an improvement as the statute allows, but it’s still an improvement.”

Conversely, many in the banking industry hailed the Court of Appeals’ decision, noting that the fees are necessary to offset the cost of providing checking accounts and other services, the Post reported.

The lawsuit challenging the Fed’s cap on swipe fees was brought by NRF, the Food Marketing Institute (FMI), the National Association of Convenience Stores (NACS), and two retailers in November 2011. The groups had argued that the Fed 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.

Under the Durbin amendment, the Fed 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 Fed to take the fraud prevention costs of banks into consideration.