Judge Leon rules that the Fed did not have the authority to institute a 21-cent cap on debit-card transactions.
The National Association of Convenience Stores (NACS) and the National Retail Federation (NRF) have responded to news that U.S. District Judge Richard Leon in Washington ruled that the Fed didn’t have the authority to set a 21-cent cap on debit-card transactions.
The Federal Reserve disregarded Congress’s intent when deciding how much banks can charge merchants for debit-card transactions and did not have the authority to set up a cap on debit-card fees, according to the ruling by Judge Leon in Washington, D.C. on Wednesday, Bloomberg reported. Leon said the rule, which has been in effect since October 2011, would remain in place pending new regulations or interim standards, according to the Bloomberg report.
“The Board has clearly disregarded Congress’s statutory intent by inappropriately inflating all debit card transaction fees by billions of dollars and failing to provide merchants with multiple unaffiliated networks for each debit card transaction,” Leon said in his 58-page ruling.
The National Association of Convenience Stores (NACS) issued the following statement from Senior Vice President of Government Relations Lyle Beckwith on U.S. District Judge Richard Leon’s decision: “The Court has vindicated our position that the final Federal Reserve rules on the implantation of the Durbin Amendment were flawed. We look forward to the Fed revisiting their initial analysis that concluded the actual cost of a debit transaction was actually four cents. By following the law and using their own data, the Fed should produce a debit card rule that lowers these outrageous fees paid by merchants and ultimately consumers.”
The case was filed by the National Retail Federation the Food Marketing Institute and NACS, formerly the National Association of Convenience Stores. Oil Miller Co., a residential heating and air company based in Norfolk, Virginia, and Boscov’s Department Store LLC, based in Reading, Pennsylvania, also joined the complaint. The groups filed the lawsuit in November 2011, noting merchants will be “substantially harmed” by the fees the Fed set under the Durbin Amendment, a provision of the Dodd-Frank legislation. The rule went into effect on Oct. 1, 2011.
“The board’s final rule permits banks to recover significantly more costs than permitted by the plain language of the Durbin Amendment and deprives plaintiffs of the benefits of the statute’s anti-exclusivity provisions,” the retailers argued in their complaint.
The National Retail Federation today issued the following statement from Senior Vice President and General Counsel Mallory Duncan on U.S. District Judge Richard Leon’s decision that found that the Federal Reserve misapplied Congress’ intent when it implemented required swipe fees reforms:
“From the very beginning, retailers and restaurants knew the Federal Reserve Board of Governors had grossly misapplied the swipe fee law, also known as the Durbin Amendment. They failed to heed Congress’ call to set fee standards that were ‘reasonable’ and ‘proportional’ to the actual cost of a transaction. Instead, the Board manufactured a standard that was two to three times higher than the Fed staff recommended.
“As a result, small ticket transactions, such as those imposed on convenience stores and restaurants, skyrocketed under the misapplied law.
“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. Today’s decision is the first step in setting these initial wrongs right and will ensure that swipe fee reform is done correctly.”