Econintersect: A federal judge in Washington, DC ruled two weeks ago that the Federal Reserve Bank was exercising authority in excess of statutory limits when it establish rules and fee limits for bank charges to vendors for transactions paid for by debit cards. The fees, so-called “swipe fee”, had been capped at $0.21 per transaction.
Before the Fed issued the regulations in October, 2011 under authority granted by the Dodd-Frank Act (Durbin Amendment), banks were receiving about $16 billion in annual transaction fees from debit card usage. Banks had maintained that the regulation would cost them about 45% of that revenue.
But the case in question was brought by vendors asserting that extra costs had been accrued by them because the Fed regulations failed to bolster competition ( actually inhibited competition?) among card networks.
The judge, Richard J. Leon, has issued a further order that the Fed must present a proposed solution in his court on 21 August. He has further set a timeline for an interim rule for debit card operations by the end of August. He also asked both the plaintiffs and the Fed to submit filings on whether retailers could be reimbursed for billions in overcharges.
It seems that the banks may lose billions in future fee revenues (and possibly more if rebates are ordered). But one commentator says not to feel sorry for the banks – they won’t lose anything as a result. The consumer will pay the difference through higher banking costs for accounts and card fees charged directly to the debit card holders and their banki accounts, according to Halah Touryalai of Forbes.
Information provided for this article by Clifford Johnson and Roger Erickson.
- Memorandum Opinion, United States District Court for the District of Colimbia, Civil Case No. 11-02075 (RJL)
- Fed Given Week by Judge to Respond on New Swipe-Fee Rules (Tom Schoenberg, Bloomberg, 14 August 2013)
- Should Retailers Expect Bank Refunds From the Swipe-Fee Lawsuit? (Patrick Clark, Bloomberg Businessweek, 15 August 2013)
- The Real Victims Of New Debit Swipe Fee Rules? Consumers, Not Banks (Halah Touryalai, Forbes, 01 August 2013)
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