NEW YORK-CUNA and NAFCU joined a broad coalition of card issuers last week in a brief opposing a lawsuit filed by merchants claiming the Federal Reserve did not go far enough in capping fees on debit transactions last year.
The Electronic Payments Coalition, which fought the Fed's rule, argues instead in its amicus brief that the Fed went too far in enacting the Dodd-Frank's Durbin amendment, because the cap on debit fees does not allow card issuers to cover their costs and a reasonable rate of return on their investments.
"Even the smallest credit unions and community banks will ultimately be harmed along with larger financial institutions," said CUNA President Bill Cheney of the Fed rule that was only supposed to apply to credit unions and banks over $10 billion in assets.
The suit challenging the Fed's rule was filed by a group including the National Restaurant Association, the Food Marketing Institute, National Association of Convenience Stores and National Retail Federation, which claim the Fed's rule fails to promote the price competition among the Visa and MasterCard networks that would help reduce network fees, the main aim of the Durbin amendment.
Small Ticket, Big Price
The restaurant association said as a result of the Fed's rule, Visa and MasterCard both announced they would raise debit fees to the Fed's cap on small-ticket transactions ($15 or less). The move, the merchants said, hurts small businesses with heavy small-ticket volume, such as the nation's quick-service restaurants.
"While the Federal Reserve's rule significantly brought down debit swipe fees for many merchants, some small businesses will pay higher fees on smaller ticket transactions -evidence that the Fed provided card networks like Visa and MasterCard too much latitude to increase rates well above a reasonable and proportional level," said Scott DeFife, executive vice president of policy and government affairs for the restaurant group. "Allowing higher fees on small-ticket bills was not the intent of Congress, and the Federal Reserve must reconcile this failure to comply with the law as intended."
The Fed set the cap on debit fees charged merchants at about 21 cents per transaction, almost five times the cost of the transaction, after intense lobbying by both sides. The lawsuit alleges that the Fed-under pressure from the banks and card industry-included costs allowed to be recovered by the fees that were barred by the Durbin amendment. The merchants say the new cap will lower debit fees for most purchases, which had averaged 44 cents, but could range as high as several dollars under the previous formula of 1%-2% of the transaction amount.
Joining CUNA and NAFCU in the brief are the Independent Community Bankers of America, Midsize Bank Coalition of America, Consumer Bankers Association, National Bankers Association, The Clearing House Association, American Bankers Association, The Clearing House Payments Company, and The Financial Services Roundtable.
