WASHINGTON -- A federal judge this morning struck down the new limits on swipe fees for debit cards, ruling that the Federal Reserve had flouted Congress's intent when it set the cap.
U.S. District Judge Richard Leon struck down the 21-cent cap set by the Fed, though he ordered it to remain in place until new regulations or interim rules are written.
The ruling means the Fed will likely be required to set lower caps for debit fees to be paid to credit unions and banks over $10 billion in assets.
"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 wrote in his ruling.
The ruling was made on a suit brought by retailers shortly after the caps were set under the Durbin amendment to the 2010 Dodd-Frank Act. That provision requires the Fed to place limits on how much banks and credit unions can charge retailers for debit-fee transactions, and has been the source of a heated lobbying battle for years, with billions of dollars in revenue at stake.
Judge Leon said the Fed rule amounted to an "utterly indefensible" interpretation of the Durbin amendment. The Fed rule, he said, "runs completely afoul of the text, design and purpose" of the swipe fee provision.
The Fed finalized the fee cap in October 2011. While the 21-cent cap, which could rise as high as 24 cents depending on certain circumstances, represented a major reduction to existing industry rates. Before the limits were put in place, banks were charging retailers an average of 44 cents per transaction.
But it represents a big boost for banks and credit unions, who were originally faced with a seven- to 12-cent cap in the original Fed proposal.
In their suit, the retailers claimed that merchants will be substantially harmed by the fees the Fed set under the Durbin Amendment. “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 case was filed by the National Retail Federation, the Food Marketing Institute and NACS, formerly the National Association of Convenience Stores, as well as Oil Miller Co., a residential heating and air company based in Norfolk, Virginia, and Boscov’s Department Store LLC, based in Reading, Pennsylvania.
The National Retail Federation, which has been fighting Visa and MasterCard for decade sover swipe fees, applauded the ruling. NRF's senior vice president and general counsel, Mallory Duncan, stated that small ticket transaction fees 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.”
