The National Retail Federation (NRF) asked an appeals court to uphold a judge’s ruling that the Federal Reserve set its cap on debit card swipe fees far higher than intended by Congress and that the cap needs to be recalculated at a lower level.
“Nearly four years after the law was passed, debit swipe fees are still far higher than they should be, and banks are raking in billions of dollars in unearned profits every year as a result,” NRF Senior Vice President and General Counsel Mallory Duncan said. “Instead of doing what Congress ordered, the Fed gave in to pressure from big banks—and retailers and their customers are paying the price. It’s time for the Fed to follow the law instead of catering to the industry it is supposed to regulate.”
A three-judge panel of the U.S. Circuit Court of Appeals is scheduled to hold a hearing in Washington this morning on the Fed’s challenge of U.S. District Court Judge Richard Leon’s July ruling that the 21-cent cap that took effect in 2011 was too high. The ruling came in a lawsuit brought by NRF and other groups.
Under the Durbin Amendment section of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Fed was required to adopt regulations that would reduce debit card swipe fees from an average 45 cents per transaction to a “reasonable” level “proportional” to banks’ cost for processing the transactions.
The law allowed the Fed to consider the incremental costs of acquiring, clearing and settling each transaction, but prohibited any other expenses from being included. The Fed estimated those costs at an average four cents and initially proposed a cap no higher than 12 cents, but eventually set the figure at 21 cents after heavy lobbying by banks. The NRF lawsuit claims the higher level includes costs that were barred by Congress.
A 2013 study found the current cap is saving merchants $8.5 billion a year, with more than two-thirds passed along to consumers, but that $12.5 billion could have been saved under a 12-cent cap.
Leon’s July ruling also agreed with NRF that the Fed’s regulations failed to comply with a congressional requirement that at least two competing processing networks be available for each transaction regardless of whether consumers choose “credit” or “debit” when using a debit card. The requirement was intended to lower costs by increasing competition.