WASHINGTON -- A coalition of retailers is suing the Federal Reserve, claiming it disregarded the law by setting the cap too high on the swipe fee banks can charge merchants for debit card transactions.
The 21¢ cap, which took effect Oct. 1 under the Durbin Amendment to the Dodd-Frank financial reform legislation, was initially proposed at 12¢.
The lawsuit was filed in U.S. District Court in Washington by the National Retail Federation, Food Marketing Institute, National Association of Convenience Stores, Boscov's Department Store (Reading, PA) and Miller Oil Co. (Norfolk), a convenience store and gas station chain.
It charges that the Federal Reserve went against its original interpretation of the law: that only costs involving the authorization, clearing and settlement of a transaction should be counted in setting the fee. Instead, the retailers claim, the Fed -- under pressure from the banks and card industry -- added costs, such as fraud losses, associated with debit card operations that were not included in the law.
The retailers argue that the cap is an "unreasonable interpretation" of the law. The result, they say, is that merchants sometimes now pay more than they did before in debit transaction fees.
The 21¢ cap would lower swipe fees for most purchases, which averaged 44¢, but could range as high as several dollars under the previous formula of 1% to 2% of the transaction amount. This fall, however, both Visa and MasterCard announced that they would charge the maximum amount even on small-ticket transactions that previously cost merchants as little as 6¢ to 8¢.
The suit seeks to have the Fed recalculate the rates.
The retailers also challenge the Fed's regulation of exclusivity agreements between banks and payment networks, arguing the rule doesn't create "competition choice" among networks.
Under the rule, a debit card may allow only one network choice for signature transactions and one network choice for PIN transactions, the groups claim.