Newspaper article Evansville Courier & Press (2007-Current)

Cap on Swipe Charges Blocked ; Judge Says Fed Lacked Authority

Newspaper article Evansville Courier & Press (2007-Current)

Cap on Swipe Charges Blocked ; Judge Says Fed Lacked Authority

Article excerpt

WASHINGTON - A federal judge has struck down a rule setting a cap on the fees that banks can charge merchants for handling debit card purchases, saying the Federal Reserve didn't have the authority to set the limit in 2011. The ruling by U.S. District Court Judge Richard Leon Wednesday handed a victory to a coalition of retail groups. They had sued the Fed over its setting the cap at an average of about 24 cents per debit-card transaction. The previously unregulated "swipe" fee averaged 44 cents. The Fed initially proposed a 12-cent cap, and the retailers had argued that the Fed buckled under pressure from bank lobbyists when it set the cap higher.

The Fed now must craft a new rule. The current one will remain in effect in the meantime.

A Fed spokesman said there was no immediate comment on the ruling.

The cap is the first-ever limit on debit card fees. Before it took effect in October 2011, banks had negotiated such fees with merchants. A big chain like Starbucks would likely get a better rate than a local coffee shop because it handles more customers. The fees were typically based on a percentage of the purchase price.

The Fed rule was called for by the 2010 financial overhaul law, which was enacted in response to the 2008 crisis. But Leon said in his ruling that the Fed disregarded Congress's intent in passing the law by "inappropriately inflating all debit-card transaction fees by billions of dollars and failing to provide merchants with multiple unaffiliated networks for each debit-card transaction."

The retailers' lawsuit maintained that the cap is an "unreasonable interpretation" that exceeds the authority given to the Fed by the 2010 law.

It also asserted that the Fed wrongly interpreted a provision of the law that requires that merchants have a choice of which bank network handles their transactions.

The retailers complained that the Fed had deviated from the law's intent by factoring expenses into the cap that the law didn't allow. They maintained that the Fed reversed its earlier view that the only costs that should be considered were those involved in the authorization, clearing and settlement of a transaction. …

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