Durbin joins lawsuit against Fed’s interchange fee

Dick Durbin

Sen. Richard Durbin (D-Ill.) has filed an amicus brief in favor of several merchant groups, including the National Restaurant Association, that brought a lawsuit last fall against the Federal Reserve’s debit transaction-fee regulations.

In 2010, Durbin authored an amendment to the Dodd-Frank Act that tasked the Fed with setting “reasonable and proportional” debit interchange fees that apply to issuers with more than $10 billion in assets. The lawsuit charges that the Fed failed to adhere to law in completing the task and requests that the U.S. District Court make a declaratory judgment that ultimately requires the Fed to revise and remedy the rule, Vending Times reports.

In Durbin’s filing, he sided with the plaintiffs in saying that the current regulation does not reflect Congress’s intent in passing a law designed to ensure that “swipe fees” are reasonable and proportional to the cost of processing a debit transaction.

“[Durbin’s brief] highlights bad behavior by payment card networks and the negative impact on small-ticket debit transactions,” the NRA said, according to Vending Times.

The current rule caps the interchange fee at 21 cents per transaction, plus a portion of the transaction amount. The NRA said that even though the cap is much less than the previous rate of 44 cents, it has had a “perverse effect” on some merchants, Vending Times reports.

Some vendors with low ticket costs have seen rates increase as card processors seemingly treat the price ceiling as a price floor. Card networks can charge the maximum allowable interchange fee of 22 cents to process a debit purchase of a 10 cent pencil.

Durbin said that the Fed originally proposed a 12 cent fee cap that aligned more with Congress’s intent, adding that the financial services industry, however, petitioned the Fed to issue a final rule that strayed from Congress’s intent.

Additionally, Durbin charges that Congress never intended to allow card companies to include network processing fees, fraud losses or other costs in the final rule, thereby justifying his position in siding with the plaintiffs, according to Vending Times.

The Fed has until June 1 to submit a response to the claim, followed by a scheduled court hearing.

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