Another Swipe at Swipe Fees

Thursday, August 15, 2013 by Curtis Picard

Retail, NRF, Swipe Fees, Debit Card Fees, Small Business

Key image for: Another Swipe at Swipe Fees

The acrimonious battle over swipe fees continues and RAM is very pleased that a federal judge recently threw out the Federal Reserve's implementation of the Durbin Amendment.

During the Durbin Amendment debate and its successful passage in Congress, it was determined that the actual cost of debit swipes was around 3 to 4 cents per transaction. At the time, the average swipe fee paid by retailers was 45 cents per transaction. The recommendation to the Fed was to cap the transactions at 12 cents per transaction to allow for fraud prevention, implementation of new technology and profit for the card processors. The retail community was good with 12 cents per transaction. However, what happened next was stunning.

The Fed, in their final rules, capped the debit swipe fee at 21 cents per transaction with an allowance of a couple more cents for other issues. It was almost double the recommended cap. So, while this was a 40% reduction in existing swipe fees, the retail community knew that is did not go far enough.

A number of groups sued and we are pleased that the federal judge has sided with retailers and is throwing out the 21 cent cap. The judge is insisting the Fed issue move quickly to issue new regulations to reduce debit card swipe fees paid by retailers and consumers.

The National Retail Federation, in their press release, wrote:
“We’re very pleased to see the court light a fire under the Fed,” NRF Senior Vice President and General Counsel Mallory Duncan said. “These fees have been driving up prices for merchants and their customers for years, and every day that it continues is one day too long. The court is absolutely correct that this is a multi-billion-dollar issue with huge implications for the U.S. economy and needs to be dealt with immediately.”

In a lawsuit brought by NRF and other trade associations, U.S. District Court Judge Richard Leon ruled last month that the Federal Reserve ignored instructions from Congress when it set a 21-cent cap on debit card swipe fees charged by the nation’s largest banks in 2011, reducing the fees from an average of about 45 cents per transaction. Leon said the cap was too high because the Fed included expenses that went beyond banks’ “reasonable” and “proportional” costs of processing debit transactions as allowed by Congress.

The Fed has 60 days to decide whether to appeal the ruling. But in a hearing this morning in Washington, Leon told Associate General Counsel Katherine Wheatley he wants the agency to move ahead with new swipe fee regulations in the meantime. He said he expects interim regulations to be completed by the end of October, and that they should go into effect while comments are accepted and reviewed. Leon did not set a deadline, but scheduled a hearing for August 21 for the Fed to state its position on the proposal and to say how soon interim regulations could be put in place.

Leon also gave the Fed and attorneys for retailers and banks a September 16 deadline for briefs on whether merchants should be reimbursed for excess amounts of swipe fees that have been collected since the cap took effect in October 2011.

Leon, who said in last month’s ruling that he wanted new regulations in “months, not years,” reiterated his demand for quick action.

“They can come (home) from where they are on vacation,” he said, referring to the Federal Reserve Board of Governors. “This is a large-scale matter affecting millions of entities and billions of dollars.”

This is good news for retailers and consumers.

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