Fed’s Debit Card Swipe Fee Rule Quashed By Appeals Court

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This latest decision was handed down Monday (Oct. 26) by a three-judge panel of the 8th U.S. Circuit Court of Appeals, affirming a ruling last year that vacated the cap.

The decision stems from a suit brought by Corner Post, a North Dakota convenience store, challenging the Fed’s implementation of the Durbin Amendment to the 2010 Dodd-Frank Act.

That 2011 regulation lets financial institutions with more than $10 billion in assets collect 21 cents for each debit transaction, along with 0.05% of the transaction amount and an additional cent for fraud prevention.

But last year’s ruling from U.S. District Judge Daniel M. Traynor found that the Fed’s statute “creates two—and only two—allowable cost buckets,” and that implementing a third unlawfully shifted billions of dollars from merchants to issuers.

“Congress did not hide an ‘easter egg’ of a third cost category in the Durbin Amendment, particularly when those additional costs would benefit banks at the expense of merchants and consumers,” Traynor wrote.

In this new ruling, the Eighth Circuit said the Federal Reserve must establish a fee structure that strictly respects statutory boundaries, requiring the agency to come up with a compliant pricing standard.

The ruling was cheered by groups such as the Merchant Payments Coalition (MPC), which argued that the current rate had allowed banks to collect more from stores and consumers than needed to cover their costs.

“Two courts have now agreed that the current rate lets banks collect billions of dollars a year more from stores and their customers than the law ever meant for them to have—far more than it takes to cover their costs and earn a healthy profit.

“Rather than keep defending an illegal rule, the Fed should promptly replace it with one that complies with the law and takes some of the upward pressure off the prices shoppers pay every day,” said Doug Kantor, MPC executive committee member and general counsel to the National Association of Convenience Stores.

Meanwhile, the Defense Credit Union Council’s Chief Advocacy Officer Jason Stverak said he was disappointed in the ruling, and argued that merchants groups’ focus on big banks ignores the decision’s impact on member-owned not-for-profit credit unions.

“A secure debit transaction requires infrastructure, fraud monitoring, network connectivity, and ongoing investment,” Stverak said. “Those costs do not disappear because a court limits which ones may be reflected in an interchange standard.”