US appeals court upholds Fed’s cap on ‘swipe’ fees
WASHINGTON – A federal appeals court has handed a defeat to a coalition of retail groups that challenged as too high the Federal Reserve’s cap on how much banks can charge businesses for handling debit card transactions.
The ruling issued Friday by the U.S. Appeals Court for the District of Columbia overturned a lower court’s decision in July that favored the merchants and was a setback for banks.
In the July ruling, a federal judge struck down the Fed’s cap on so-called “swipe fees,” saying the Fed didn’t have the authority to set the limit the way it did in 2011, improperly including data that made the cap too high.
The retail groups had sued the Fed over its setting the cap at an average of about 24 cents per debit-card transaction. The appeals court ruling upholding the Fed’s cap was a blow to an industry already buffeted by public and congressional outrage over the massive data breach that hit Target Corp. during the holiday season and other data-security violations at big retailers.
Congress mandated a ceiling on debit-card swipe fees as part of the 2010 financial regulatory overhaul. Prior to the cap, fees averaged 44 cents per swipe. The Fed had initially proposed a 12-cent fee limit, and the retailers argued that the Fed buckled under pressure from bank lobbyists when it doubled that level.
The retailers had argued that the Fed deviated from the 2010 law’s intent by factoring banks’ expenses into the cap that the law didn’t allow.
The three-judge panel of the appeals court said that in making that argument, “far from summiting the steep hill, the merchants have barely left basecamp.” The judges said they decided to defer to the Fed’s “reasonable interpretation” of the law and to reject the retailers’ challenge.
The National Retail Federation, one of the parties that had sued the Fed, said Friday that it was reviewing the ruling and will decide whether to appeal it.
“NRF is disappointed and remains confident that the Federal Reserve erred when it set the swipe-fee cap far higher than intended by Congress,” Mallory Duncan, the group’s senior vice president and general counsel, said in a statement. “The Fed ignored congressional intent, and worked to shield debit-card companies and big banks.”
The Fed, which had appealed the lower court ruling, said Friday that it was pleased with the appeals court decision.
The banking industry welcomed the ruling. “Reasonable minds have prevailed,” Richard Hunt, president of the Consumer Bankers Association, said in a statement.
Hunt said the group still believes the mandate for a fee cap is flawed, but also acknowledges that further changes to the fees “would only pile on the negative consequences for consumers.”