Credit Card Swipe Fee Ruling Overturned

A U.S. judge from North Dakota has vacated the Federal Reserve’s credit card swipe fee regulation that capped the amount banks can charge merchants for processing transactions. The ruling says swipe fees set by the Federal Reserve set the cap too high, causing financial stress for small- to mid-size retailers.

The summary judgment granted was in response to a 2021 federal lawsuit filed by Corner Post, a truck stop and convenience store in North Dakota. U.S. District Judge Daniel Traynor said his order does not prevent the Fed’s proposed reduction in the cap, which has been pending since 2023, from taking effect if the Fed moves forward with the reduction.

The ruling will not take immediate effect, as the Federal Reserve has a chance to appeal the ruling, which could take months to resolve.

“As merchants have argued for 14 years, the Fed’s broad attempt to allow big banks to essentially charge rent-seeking fees for debit card transactions is illegal,” says Stephanie Martz, National Retail Federation (NRF) chief administrative officer and general counsel. “That question is now settled. If the Durbin Amendment is to mean anything, it’s that there are specific costs that banks can recover from merchants, and costs that they categorically cannot recover from merchants. This court was correct in discerning this distinction. And the court was correct in requiring the Fed to set rates based on individual transactions, not a blended average. We fully expect this decision to be sustained on appeal, and to save merchants hundreds of millions of dollars.”

The lawsuit says the Federal Reserve set the cap higher than allowed under the Durbin Amendment, a 2010 law directing it to adopt regulations resulting in debit card swipe fees that were reasonable and proportional to banks’ costs, according to the NRF.

The Federal Reserve proposed a limit of 7 to 12 cents per transaction, but ultimately set the cap at 21 cents, plus one cent for fraud protection and 0.05% for fraud loss recovery. Since then, the Federal Reserve has reviewed banks’ costs every two years, finding the allowable costs averaged 7.7 cents per transaction.

The Merchants Payments Coalition (MPC) also welcomed Traynor’s ruling.

“We are glad to see this well-reasoned decision,” says Doug Kantor, MPC executive committee member and national association of convenience stores general counsel. “This case shows that banks have swiped a windfall of billions of dollars per year in debit fees from Main Street that go far beyond normal, competitive profit margins. The Federal Reserve should quickly rewrite its rules to cure this problem and reduce the inflationary pressure these fees impose on the entire US economy.”

Read Traynor’s ruling here.