News

Debit fee cap set too high, U.S. district court judge rules

July 31, 2013

A judge for the U.S. District Court in the District of Columbia sided today with retailers who claimed that the Fed had set the debit transaction fee cap mandated by the Durbin amendment higher than lawmakers intended.

The judge also said that the Fed had failed to provide multiple unaffiliated networks for debit card transactions as required by the Durbin amendment to Dodd-Frank.

According to a report by Reuters, Judge Richard Leon wrote in his ruling that in setting the fee cap at 21 cents, the Fed had "inappropriately inflat[ed] all debit card transaction fees by billions of dollars."

The Durbin Amendment charged the Federal Reserve with determining what the cap should be, based on banks' costs for providing debit card service. But when the Fed announced a cap higher than the regulator had initially proposed, retailers took their objections to court.

"From the very beginning, retailers and restaurants knew the Federal Reserve Board of Governors had grossly misapplied the swipe fee law," said a post-ruling statement from Mallory Duncan, general counsel at the National Retail Federation.

On the other side, Consumer Bankers' Association president Richard Hunt released a statement predicting "even more chaos ahead for consumers and small banks."

Reuters report said that Visa and MasterCard could not be reached for comment on the ruling. However the news agency said that the card companies' stock prices had declined by 11 percent and 6 percent respectively in the wake of the ruling.

The case is in Re: NACS v. Board of Governors of the Federal Reserve System, 11-cv-02075, U.S. District Court, District of Columbia.

Read more about regulatory issues.