WASHINGTON – In the years since the Federal Reserve’s cap on debit card swipe fees took effect, retailers and banks have continually argued whether the cap was set higher than Congress originally intended. This week, Senator Richard Durbin — who authored the law that led to the cap in 2011 — is telling the U.S. Supreme Court that the Federal Reserve Board got it wrong, and that retailers are right.
Durbin’s comments came last week as part of a brief filed in a lawsuit brought by NACS and other merchant organizations that claims the 21-cent cap set by the Fed in 2011 goes beyond the “reasonable and proportional” level mandated by Congress under the Durbin Amendment provisions of the Dodd-Frank Consumer Protection and Wall Street Reform Act of 2010.
According to news reports, Durbin stated that “The amendment was carefully crafted and its purpose was clearly expressed. Unfortunately, the Board’s final rulemaking failed to sufficiently follow the text and purpose of the law.”
Durbin went on to say that “Because interchange fees are ultimately borne by consumers in the form of higher retail prices, consumers have suffered as a result.”
Under the Durbin Amendment, the Fed was only allowed to consider the costs of authorizing, clearing and settling each transaction, a cost initially calculated at an average of 4 cents per transaction and proposed a cap of up to 12 cents. The eventual 21-cent level was set after the banking industry launched an aggressive lobbying campaign to weaken the draft rule.
In 2013, a U.S. District Court judge agreed with merchant organizations that the cap was too high, but the U.S. Circuit Court of Appeals overturned the ruling this spring, citing “ambiguity” in the 2010 law. Last month, NACS and its partner organizations asked the Supreme Court to hear the case, and is currently awaiting the court’s decision whether to do so.