WASHINGTON -- The U.S. District Court for the District of Columbia has ruled in favor of a group of leading trade associations and retailers in their challenge to rules enacted by the Federal Reserve Board under legislation requiring tighter regulation of the fees charged by banks for debit-card transactions. The responsibility for this rulemaking was given to the Federal Reserve Board by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, named for former Sen. Chris Dodd and Rep. Barney Frank.
The National Restaurant Association applauded the decision as a "tremendous victory" for merchants and their customers alike.
Separately, the Chicago-based National Automatic Merchandising Association announced today that the rule change is a positive development for the vending industry, but warned that it does not alter current fees for debit-card transactions, and that it might be appealed. | SEE NAMA RELEASE
NRA teamed up with the National Association of Convenience Stores, the National Retail Federation, the Food Marketing Institute, and retailers Boscov's Department Store (Reading, PA) and Miller Oil Co. (which runs a chain of convenience stores in the Norfolk, VA area) to ask that the court overturn the board's rule, issued in mid-2011, which limits the swipe fees charged to merchants for debit-card purchases at 21¢ per transaction.
The plaintiffs observed that this "cap" is a great deal higher than the original 7¢ "safe harbor" and 12¢ swipe-fee cap first proposed by the Federal Reserve late in 2010. Moreover, the major bankcard issuers announced that they would raise their swipe fees to that 21¢ maximum on low-value transactions. The plaintiffs pointed out that levying such a fee on transactions of less than $15 hurts small businesses, such as quick-service restaurants, with a high volume of "small-ticket" sales.
The industry groups also argued that the final rule has failed to promote the "price competition among card networks" that would help reduce network fees. The Dodd-Frank law was intended to establish a competitive market dynamic between networks, such as Visa and MasterCard, to keep costs down, they said. However, under the Fed's final rule, there is no competition on signature debit routing and very limited, if any, competition on transactions involving use of a Personal Identification Number.
The court agreed with both contentions. "Upon consideration of the pleadings, oral argument, and the entire record therein, the court concludes that the board has clearly disregarded Congress's statutory intent 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 court ruled. "Accordingly, the plaintiffs' motion is granted and defendant's motion is denied."
"The District Court's decision is a tremendous victory for the restaurant and foodservice community and the over 130 million customers we serve every day," said NRA executive vice-president of policy and government affairs Scott DeFife. "In particular, this ruling should provide relief for merchants with small-dollar tickets on whom Visa and MasterCard used the Fed's original final rule as an excuse to more than triple rates on those transactions.
"In accordance with the court's ruling, the law can now be carried out as intended by Congress, creating real relief for merchants, and ultimately consumers from excessive, hidden debit card swipe fees," DeFife added. "It also requires the Federal Reserve to revisit rules pertaining to network competition, which should result in more competition between networks on all types of debit transactions going forward."
The National Restaurant Association had been a strong supporter of the debit-card fee reforms contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which assigned to the Federal Reserve the responsibility for ensuring that debit-card fees are "reasonable and proportional" to the cost of processing transactions.
The court's decision, written by United States District Judge Richard J. Leon, may be found online at the NACS website.