21-cent debit card swipe fee cap upheld

March 21, 2014

A federal appeals court has today handed down a ruling in a back-and-forth drama that grew out of the 2010 Dodd-Frank Consumer Protection and Wall Street Reform Act. The ruling finds in favor of the Federal Reserve's 2011 compromise, in which a 21-cent limit was put on debit swipe fees. That was down considerably from what had been the previous average of 44 cents per transaction.

The National Restaurant Association and the National Retail Federation, which have been deeply involved in this battle all along, immediately announced a statement about their disappointment.

"We are disappointed in the outcome of today's U.S Court of Appeal's decision to largely uphold the Federal Reserve's debit card interchange fee rule and network non-exclusivity rule," said the NRA's EVP of Policy and Government Affairs, Scott DeFife. "The U.S. District Court's original ruling appropriately took into account the concerns raised by small ticket merchants. Allowing higher fees on small-ticket bills was not the intent of Congress and an unintended consequence of the Federal Reserve's flawed implementation of the law. We hope the Federal Reserve will exercise its existing authority to reconcile this failure and ensure the major card brands cannot continue to impose unreasonable debit card fees on the restaurant and foodservice industry to the detriment of thousands of businesses and ultimately our customers."

Mallory Duncan, the NRF's SVP and General Counsel, added, "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."

As a result of the Durbin Amendment provisions of Dodd-Frank, the Fed adopted rules that specified "reasonable and proportional" fees, based on actual costs involved. The Fed calculated the actual average cost at 4 cents per transaction and initially proposed a cap no higher than 12 cents, but eventually settled on 21 cents after what NRF calls "heavy lobbying from the financial services industry."

NRF appealed in 2011, alongside several other retail groups. Judge Richard Leon eventually ruled in NRF's favor, and told the Fed to go back to the drawing board and do the calculations again. The Fed appealed, and today the court in D.C. ruled in its favor and overturned Judge Leon′s ruling.

According to the statements from both the NRA and the NRF, this fight is probably not over yet.

"We are currently reviewing the opinion and exploring further legal options," DeFife said.

"NRF's work over the past several years led to a cap that cut debit swipe fees in half," Duncan added. "That has saved many retailers and consumers billions of dollars but the fees, especially for small ticket transactions, are still far too high. We are reviewing the decision and will determine whether to appeal."

You can download and read the entire ruling here.

Topics: Operations Management

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