A federal appeals court dealt a blow to merchants in the swipe fee debate last week after it issued a ruling upholding the Federal Reserve cap on debit transaction processing fees.
In 2011, the Federal Reserve, under the authority of the 2010 Dodd-Frank Act, issued a rule capping swipe fees—the amount a bank charges a merchant to process a transaction—at 21 cents per transaction.
Retailers, however, filed suit and have since pushed for a reduced cap, saying the central bank did not follow Congress’ intent in drafting the rule. The National Retail Federation—the world’s largest retail trade association—expressed disappointment in Friday’s ruling.
“NRF is disappointed and remains confident that the Federal Reserve erred when it set the swipe fee cap far higher than intended by Congress,” NRF Senior Vice President and General Counsel Mallory Duncan said. “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.”
The court disagreed with retailers, overturning a July ruling by an earlier court that found the Fed’s rules to violate congressional intent.
“[W]e hold that the [Fed’s] rules generally rest on reasonable constructions of the statute…” the court said, adding, however, that the Fed must better detail its treatment of transactions-monitoring costs.
In addition to the swipe fee cap, the court also ruled to uphold the Fed’s anti-exclusivity rules that mandate that all merchants must be able to route transactions through at least two unaffiliated networks.
Several financial services trade groups, including the American Bankers Association, National Association of Federal Credit Unions, Independent Community Bankers of America and Consumer Bankers Association expressed satisfaction with the ruling.
“Reasonable minds have prevailed in vacating the District Court’s ruling to affirm the existing rule,” the CBA said of Friday’s ruling. “While we still believe the underlying rule is flawed, any further changes to the currently allowed interchange rates would only pile on the negative consequences for consumers. Make no doubt about it—consumers must come first in this process, not the bottom-line of retailers. This drawn-out fight should put on notice those Members of Congress who insist upon interfering with the free market.”