Swipe-Fee Rule Rejection Helps Merchants and Banks’ Cost
After winning a court ruling on claims they were over charged billions of dollars under and unlawful rate set by the Federal Reserve, retailers battling banks over debit-card transaction costs may soon benefit from lower fees. In Washington, U.S. District Judge Richard Leon ruled on Tuesday that in setting the cap on debit card transaction fees at 21 cents, the Federal Reserve considered data it wasn’t allowed to use under the Dodd-Frank law and neglected to bolster competition in card networks.
“The board’s final rule not only fails to carry out Congress’s intention; it effectively countermands it!” Leon wrote in his ruling.
Before Federal Reserve regulations cut back on perks such as reward programs and free checking to soften the blow, Lenders collected about $16 billion annually from swipe fees. Unless overturned, the decision will force regulators to revisit rules that bankers said would cost them 45% of their swipe-fee revenue.
“In effect since October 2011, the Fed’s rule will stay in place until the central bank drafts new regulations or interim standards,” Leon said.
Frank Keating, the president of the American Bankers Association, said the decision “will harm banks of all sizes and make it more difficult for institutions to serve their customers.” “The price controls enacted as a result of the Durbin Amendment served one purpose – further lining the pockets of our nation’s big-box retailers at their own customers’ expense,” Keating said in a statement. “It was – and still is – all about trying to help retailers increase profit margins while providing no real benefit to consumers.”
Merchants previously paid banks an average of 44 cents per transaction. The Fed first proposed cutting the sum to 12 cents before settling on 21 cents after bankers complained.
“Tuesday’s ruling will lead to lower interchange rates for billions of debit card transactions each year,” said Durbin, who filed a brief in the case supporting the retailers. “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”.
Leon, who said the Fed rule raised costs for debit transactions under $12, said he was inclined to give the Fed “months, not years” to rewrite the rule.
“The starkest, most powerful evidence of how absurd this rule was is that it resulted in a price increase,” Jeffrey Shinder, an attorney at Constantine Cannon LLP in New York who filed a brief for a group of retailers including 7-Eleven Inc. and Wendy’s Co.
For more information, visit: http://www.bloomberg.com/news/2013-07-31/fed-s-debit-card-swipe-fee-limits-rejected-by-u-s-judge.html