Court Rules in Retailers’ Favor on Debit Swipe Fee Reform

A federal judge threw out a Federal Reserve rule on fees banks can charge merchants when they swipe customers’ debit cards, saying the Fed didn’t do enough to limit the charges.

The ruling won’t have an immediate effect on debit fees since it temporarily postpones enforcement of the decision, citing the potential disruptive effects to an industry that has been complying with the Federal Reserve rule for nearly two years.

U.S. District Court Judge Richard Leon set an Aug. 14 court hearing to discuss next steps, and suggested he would give the Fed “months, not years” to fix the regulations, likely forcing the Fed to slash those fees.

“Congress clearly told the Fed to introduce competition and transparency into the debit card marketplace by making multiple networks available, so as to reduce swipe fees for merchants and their customers. The Fed failed to do so, and the court rightly ruled against them as a result,” said Mallory Duncan, Senior Vice President and General Counsel of the National Retail Federation. “(The) decision is the first step in setting these initial wrongs right and will ensure that swipe fee reform is done correctly.”

Debit swipe fee reform, passed by Congress in 2010 and also known as the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, required the Federal Reserve to ensure the fees charged to merchants that accept debit cards be “reasonable and proportionate” to the cost of the transaction. The law exempted 99 percent of all banks and applied only to those banks with more than $10 billion in assets.

In 2010, after aggressive lobbying by Visa, MasterCard and the biggest banks, the Federal Reserve capped debit swipe fees for non-exempt institutions at roughly 24 cents, more than three times higher than the cap it had proposed and more than five times higher than the Federal Reserve found such transactions to cost.

The lawsuit was filed by the National Retail Federation, the Food Marketing Institute and the National Association of Convenience Stores as well as two individual retailers.