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Fed appeals swipe fee ruling

October 24, 2013 by Terry Dooley — SVP & CIO, ITS, Inc

In late August, the U.S. Federal Reserve appealed Judge Richard Leon’s decision to reject the agency's cap on debit card transaction fees, a requirement of the Durbin Amendment.

Leon, of the U.S. District Court for the District of Columbia, ruled on July 31 that the Fed's fee cap of 21 cents per transaction was higher than Congress intended. He strongly suggested that the Fed reconsider earlier proposals to set the fee at 12 cents.

Lawmakers included the fee cap in Dodd-Frank in hopes that the savings would trickle down to consumers in the form of lower prices from merchants. Interestingly, after the cap went into effect, an Electronic Payments Coalition survey found that 76 percent of retailers kept prices the same, or raised them, instead of passing on savings to customers.

"The Federal Reserve's decision to appeal is the right thing to do for consumers who value debit cards and the financial institutions that serve them," said Frank Keating, president of the American Bankers Association.

The Fed has sought to keep the current debit cap rule in place during the appeal. A federal district court agreed and has allowed the existing cap and routing rules to remain until a ruling is made on the appeal. The U.S. District Court for the District of Columbia also expedited appeal of the ruling.

In 2011, the National Retail Federation, the National Association of Convenience Stores, and the Food Marketing Institute filed the lawsuit that led to Leon’s ruling to overturn the Fed's fee cap. If these merchant groups get their collective wish, the Fed will have to go back to the drawing board and likely get tougher on debit card fees.

It’s important to keep in mind that even with an expedited appeal, the process is expected to take at least a year. We’ll continue to update this blog as progress is made.

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