Have retailers lost the ‘swipe fee’ war?


In a blow to the nation’s retailers that have fought (and won) for nearly four years to limit bank “swipe fees,” a U.S. appeals court recently reversed a lower court’s decision that sided with retailers and ordered the Federal Reserve to rewrite its rules governing allowable fees that banks can charge each time a customer’s debit card is swiped.

Swipe fees, also known as interchange fees, are set by Visa, MasterCard and other card networks.

The ruling reverses a July decision by District Court Judge Richard Leon, who said that the Fed knuckled under pressure from the banking lobby and set the swipe fee cap too high. Specifically, the Fed was allowing banks to charge retailers up to 21 cents per swipe. Notably, that cap was about half the previous 44-cent-per-swipe being charged prior to passage of the 2010 Dodd-Frank financial reform law by Congress. But it was still labeled excessive by retailers who cite the true cost of handling a debit card transaction for banks is more like 4 cents.

It’s no surprise the banking industry is applauding the decision that will funnel billions of dollars back into their coffers. Moreover, retailers can forget about receiving back any of the excessive fees they’d been charged in the past. Businesses pay the fees to banks when customers use debit cards to purchase goods or services. The fees reimburse banks for costs involved in offering debit cards. But banks also argued they need the fees to offset the cost of providing checking accounts and other services.

Consumer Bankers Association president Richard Hunt says: “Reasonable minds have prevailed. Any further changes (reductions) to the currently allowed interchange rates would only pile on the negative consequences for consumers. Consumers must come first in this process, not the bottom line of retailers.”

Really? It’s not billions for the banks? Kinda makes you want to stomp your foot and blow a raspberry, doesn’t it?

As a practical matter, dealers and marinas, like most other retailers, absorb the swipe fee costs when a customer uses a debit card. When Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, it included a provision authored by Sen. Dick Durbin, D-Ill., that the Fed must reduce the unregulated swipe fees that were averaging around 44 cents per transaction and had escalated 234 percent between 1998 and 2006.

Accordingly, the Fed proposed a more reasonable cap of 12 cents. Then, in marched the bank lobbyists and suddenly the rate nearly doubled to 21 cents. That’s when groups led by the National Retail Federation sued the Fed, maintaining the 21-cent cap was more than Congress intended and the lower court ruled in favor of the retailers. The Fed appealed.

Disappointed, Durbin has labeled the latest appeals court ruling “a giveaway to the nation’s most powerful banks and a blow to consumers and small businesses across America.” He further lambasted the court for upholding a rule that will allow “Visa and MasterCard to dramatically increase debit swipe fees on many small businesses, contrary to Congress’s clear language and intent.”

Has the retailers fight for swipe fees based only on the true cost of handling such a transaction (as intended by Congress) come to an end? Hopefully not. The retail groups could appeal to the full appellate court or even directly to the U.S. Supreme Court.

For now, attorneys representing the retailers are studying the details of the court’s opinion, concerned it might have opened the door for even higher swipe fees. In the ruling, the court said the law's "ambiguity" gave regulators leeway to set a higher fee cap.


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