A US District Court in the District of Columbia issued a decision stating that the Federal Reserve Board ignored the intent of the federal legislation, inflated debit card transaction fees by billions of dollars and failed to provide merchants with multiple unaffiliated networks for each transaction.
The National Association of Convenience Stores said the board’s flawed debit card swipe-fee reform regulations allowed big banks to keep charging “unjustifiably high” swipe fees and discouraged competitive pricing among credit card networks.
“The court vindicated our position,” said Lyle Beckwith, NACS senior vice-president of government relations. “We look forward to the Federal Reserve Board revisiting its initial analysis that concluded the actual cost of a debit card transaction was actually 4 cents.”
The Board was required by the passage of the Dodd-Frank Wall Street Reform legislation to establish guidelines for banks on swipe fees that are “reasonable” and “proportional” to the actual costs of handling those transactions. The report determined the average cost was about 4 cents per transaction, but the board proposed fees be capped at 12 cents. By the time the regulations were finalized the fees increased to 21 cents plus 0.05% of the sale, and another penny was added for fraud protection.
When the Federal Reserve Board released its final rule, the debit fees that the largest banks were allowed to charge were far higher than the law would allow. The result was an approximate fee of 21 cents per transaction, which was far above the fee of 7 to 12 cents as originally proposed by the Fed.
On small transactions the fees actually increased to the point of exceeding the gross profit on a sale.
Furthermore, the judge, in his ruling, emphasized that the Feds process of review should only take months not years, since they already have the data at their fingertips.
In addition, the current rules and regulations will remain in place while the court decides to either set a deadline to replace the rules or puts in place temporary rules until the newly revised rules are finalized.
This is only a beginning step toward obtaining fairness for retail merchants. And the big banks can appeal the decision. But what we have seen here is the acknowledgement that swipe-fees, even as revised, are unrealistically high.
Hopefully, “fairness” will prevail, and revised rules will reduce fees imposed on merchants and ultimately the consumer.