Judge backs retailers over Fed's debit card fee cap

Judge backs retailers over Fed's debit card fee cap

A US judge has ruled that the Federal Reserve disregarded the intent of Congress by setting a cap on interchange fees for debit card transactions too high.

The Durbin amendment to the Dodd-Frank financial law required the Fed to make sure than swipe fees reflected the actual cost of processing card transactions. In 2011, the Fed surprised many by setting the cap at 21 cents per transaction, rather than the 12 cent ceiling proposed in earlier consultations.

A collection of retailers quickly brought a lawsuit against the Fed and have now been backed by Richard Leon, a district court judge in Washington, who granted their motion.

Leon's ruling says that the Fed "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".

A court hearing has now been set for 14 August to discuss the next step but Leon says he will give the Fed "months, not years" to make changes to its rule, which "runs completely afoul of the text, design and purpose" of the Durbin amendment.

Durbin himself says: "Today's decision by the Federal District Court is a victory for consumers and small business around the country and will lead to lower interchange rates for billions of debit card transactions each year.

"The Fed's 2011 decision to bend to the lobbying by the big banks and card giants cost small business and consumers tens of billions of dollars and did not do enough to rein in the anti-competitive, anti-consumer practices of Visa and MasterCard."

In contrast, Frank Keating, president and CEO, American Bankers Association, says: "We're deeply disappointed in today's court decision, which will harm banks of all sizes and make it more difficult for institutions to serve their customers."

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