Few consumers know that there is a heated battle going on about the fees charged every time you swipe your debit card. It’s a conflict between big banks and large retailers, two politically influential and well-moneyed groups, about the current cap on debit card swipe fees. The latest round of this years-long battle was a victory for the banks.
On March 21 the US Appeals Court for the District of Columbia overturned a lower court’s July decision that ordered the Federal Reserve to recalculate and lower its 21-cent per transaction cap on the fees charged for processing a debit card payment. Retailers cheered that decision and expressed optimism that the so-called debit card swipe fee would be reduced to as low as 12 cents. This latest ruling means that the swipe fee cap will remain at 21 cents per transaction.
The imbroglio over how much banks should be able to charge stores for processing a debit card purchase began after the 2010 passage of the Dodd-Frank Consumer Protection and Wall Street Reform Act. Under the Durbin Amendment of that legislation, the Federal Reserve was tasked with formulating regulations that would result in swipe fees that reflected the actual costs to banks of processing a payment. Initially, the Federal Reserve proposed a cap of 12 cents, though it later revised it upwards to 21 cents. Before the passage of the Durbin Amendment and the Federal Reserve’s calculations the average debit card swipe fee was about 45 cents.
Seeking to lower the cap even more, the National Retail Federation (NRF) and other groups filed an appeal in federal court in 2011, which eventually resulted in last summer’s ruling. Naturally, the NRF was disappointed in the court’s latest ruling. “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,” says Mallory Duncan, NRF’s senior vice president and general counsel. NRF and its allies are considering whether to appeal this latest ruling.
By contrast, the American Bankers Association applauded the ruling but remained critical of the establishment of a swipe fee cap in the first place. “While this decision is a welcomed outcome, the fact remains that the underlying policy – the Durbin Amendment – has not accomplished its goal of lowering prices for consumers. It has only served to increase the bottom line for big box retailers,” says ABA president Frank Keating. This is a battle that seems likely to continue.
