Victory for Banks as the U.S Court of Appeals Rules to Retain Fed’s Cap of 21 Cents

On 21st March 2014, the National Retail Federation, National Restaurant Association and many others involved - expressed disappointment in the court decision that saw the Federal Reserve’s cap on Debit card swipe fees remain at 21 cents. This ruling was issued by the US Appeals Court for the District of Columbia, and spells a victory for the banking industry.

NRF is disappointed and remains confident that the Federal Reserve erred when it set the swipe fee cap far higher than intended by Congress, said NRF’s Sr V.P and General Counsel, Mallory Duncan. 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 2010 Dodd-Frank consumer protection and Wall Street Reform Act, the Feds were supposed to adopt 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 'heavy lobbying from the financial services industry' according to the NRF.
  • The lawsuit against the Fed was brought by - the National Association of Convenience Stores; the Food Marketing Institute; Boscov's Department Store, a chain of 40 stores based in Reading, Pa.; and Miller Oil Co. of Norfolk, Va., which operates convenience stores and gas stations. This is in addition to the NRF and NRA.
  • Judge Richard Leon eventually ruled in NRF's favor in 2011, and told the Fed to go back and do their calculations again.
  • The Fed appealed, and on 21st March 2014 - the U.S court of Appeals in Washington D.C. ruled in its favor and overturned Judge Leon′s ruling.

'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. 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, said the NRA's EVP of Policy and Government Affairs, Scott DeFife. 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, he added.

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