North Dakota Groups Sue Federal Reserve Over Swipe Fees

The two associations asked the court to overturn the Fed’s regulation and reduce debit transaction fees for merchants.

April 30, 2021

Credit and Debit Cards

WASHINGTON—The North Dakota Retail Association and the North Dakota Petroleum Marketers Association have filed suit against the Federal Reserve over swipe fees, Bloomberg reports. The groups want the agency to overturn its 21-cent cap on fees for cards issued by the biggest U.S. banks. The fees merchants pay related to transaction processing for credit and debit cards have soared to more than $100 billion each year.

Ten years ago, the Durbin Amendment to the Dodd-Frank financial regulation overhaul ordered the Fed to regulate debit fees at a number proportional to the cost banks incur handling the transactions. “For a decade, the board has failed to properly follow Congress’s instructions to ensure that debit-card processing fees are reasonable and proportional to the costs of debit-card transactions,” the complaint alleges. “American consumers and merchants continue to suffer the same harms that prompted Congress to act in the first place. Enough is enough.”

The Fed picked 21 cents per transaction for the fees, but data has shown that the bank cost for processing debit-card payments declined to 3.6 cents per transaction in 2017.

“As time has gone on and the cost of authorizing, clearing and settlement have regularly gone down per the Fed’s own findings, small businesses in places like North Dakota and all over the country are really being harmed,” said Stephanie Martz, general counsel for the National Retail Federation and co-counsel in the litigation. The federation is not directly involved in the case.

“Especially during the pandemic, we’ve seen even more debit cards,” said Mike Rud, president of the two North Dakota associations. “That all starts to add up.”

NACS, along with other trade groups, filed a similar lawsuit against the Federal Reserve when the regulations were first issued. While the U.S. District Court for the District of Columbia agreed with NACS that the Fed’s regulation set debit fees too high, that decision was reversed on appeal. Over time, banks’ costs have shrunk, but the Fed has never revisited its regulation to adjust the fees. The North Dakota lawsuit challenges that and other failures by the Fed regarding its debit regulation.

“It is good to see this challenge to the Federal Reserve’s debit regulation,” said Lyle Beckwith, NACS senior vice president for government relations. “The Fed’s refusal to follow Congress’ intent has kept debit fees too high for too long, and the data shows it. The court should swiftly send the Fed back to the drawing board to give American consumers and merchants the savings that the law intended.”

Credit card swipe fees remain one of the highest operating costs for convenience store retailers, according to NACS State of the Industry data. Consumer preferences for more touch-free transactions and the coin circulation challenge in summer 2020 led to record debit and credit card usage at convenience stores. In 2020, 74.6% of all transactions were paid by plastic, and overall card fees paid by the convenience store industry were $10.7 billion.

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