Magazine article American Banker

Battle over Durbin Rages on as Banks Fire Back at Merchants in Court Papers

Magazine article American Banker

Battle over Durbin Rages on as Banks Fire Back at Merchants in Court Papers

Article excerpt

Byline: Kevin Wack

WASHINGTON a The epic battle between banks and retailers over interchange fees, which first moved from the halls of Congress to the Federal Reserve, is now being fought in court.

A group of financial industry trade groups intervened Thursday in a lawsuit brought by retailers against the Fed. The merchants' lawsuit alleges that the central bank strayed from the instructions of Congress when it allowed banks to charge roughly 22 cents for each debit-card transaction.

But in a 47-page brief filed in U.S. District Court, a broad coalition of financial institutions argued the opposite a that the Fed went too far in restricting the fees they are allowed to charge under the Durbin Amendment.

"The final rule is flawed, but for reasons that are diametrically opposite of those presented by the merchants," the financial institutions stated in their brief.

"Far from improving consumer welfare, the Final Rule leads to reduced financial services and higher fees for millions of Americans. It also threatens to reduce lending and investment by banks and credit unions during an already fragile economic recovery. The final rule will not benefit merchants' customers, but rather will only serve to line the pockets of merchants."

The Durbin Amendment, enacted in 2010 as part of the Dodd-Frank Act, instructed the Fed to establish fees that are reasonable and proportional to the financial institution's cost for the transaction.

In their brief, the financial institutions argue that the Fed's rule will cost them an anticipated $6 billion to $8 billion in annual revenue.

"The merchants bring their lawsuit in pursuit of even deeper cuts in issuers' interchange-fee revenues, seeking to reap the benefits of debit card transactions and innovation in the electronic-payments system practically for free a an unwarranted, unfair, and unprecedented windfall," the brief states. …

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