No One Happy with the State of Swipe Fees

Three years since the Durbin Amendment and the swipe fee contest continues.

October 21, 2014

WASHINGTON – It’s been three years since Congress passed the Durbin Amendment to the 2010 Dodd-Frank financial reform law, yet still no one seems to be happy with this hotly contested rule intended to lower swipe fees on debit cards, says a recent article in the Washington Examiner.

The rule, which capped the fees that banks can charge merchants for debit card transactions, was the subject of intense lobbying between retailers and banks. The Federal Reserve finalized the regulation in June 2011, capping swipe fees at 21 cents per transaction, effectively halving the average fee.

But the rule’s supporters, including a coalition comprised of NACS and other merchant organizations, are petitioning the Supreme Court to make the Federal Reserve Board of Governors lower the cap, arguing that it was set too high in response to lobbying from banks. Initially, the Fed had proposed a 12-cent cap.

Retailers, who lost at the appellate level in March, argue that the Fed’s fee cap is not a reasonable interpretation of the statute’s call for “reasonable and proportional” fees. They have a lot at stake: Swipe fees, officially called interchange fees, amount to roughly $16 billion annually, and retailers warn that they make up a rising share of their operating costs.

“Unfortunately, the board’s final rulemaking failed to sufficiently follow the text and purpose of the law,” Sen. Dick Durbin, D-Ill.,wrote in a brief supporting the retailers’ challenge filed with the Supreme Court in September. “Because interchange fees are ultimately borne by consumers in the form of higher retail prices, consumers have suffered as a result,” argued Durbin, the amendment’s namesake.

Douglas Kantor, an attorney for the retailers, said he was “hopeful” that the Supreme Court would take up the case in January. If it is, he said, the case would hinge on whether the Fed had allowed banks’ costs unrelated to their debit card business to be factored into the calculation of what was a “reasonable” swipe fee.

Although the rule has helped consumers and merchants overall, Kantor told the Examiner, the “results have been more mixed than it should have been” if the Fed had set a lower cap. In particular, the rule had the perverse effect of raising fees on transactions under $15 by effectively setting a floor on swipe fees as well as a cap. While the rule saved consumers $6 billion a year, it would have saved an additional $4 billion if the cap had been set at 12 cents, according to a report released by the Merchants Payments Coalition, an industry group.

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