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Debit Card Transaction Fees: Sen. Durbin Supports Merchants' Suit Against Fed

by Staff Reporter
Posted On: 5/23/2012

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vending machine transactions, vending business, Federal Reserve Systems Board of Governors, Sen. Richard Durbin, Durbin Amendment, debit card fee, debit fee lawsuit, cashless vending, National Restaurant Association, Food Marketing Institute, National Association of Convenience Stores, Boscov's Department Store, National Retail Federation, Miller Oil Co., Dodd--Frank Wall Street Reform, Consumer Protection Act

Richard Durbin WASHINGTON -- Sen. Richard Durbin (D-IL) has filed an amicus curiae brief that supports a lawsuit brought by the National Restaurant Association and other merchant groups against the Fed Board of Governors' debit card transaction-fee regulations.

The Illinois senator authored an amendment to the 2010 Dodd--Frank Wall Street Reform and Consumer Protection Act that gave the Federal Reserve System's board the task of establishing "reasonable and proportional" debit card interchange price controls, which apply to card issuers with more than $10 billion in assets. The lawsuit, filed last fall, accuses the Fed of failing to follow the law in carrying out this task. It asks the U.S. District Court here for a declaratory judgment requiring the Fed to revisit and rectify its rulemaking. | SEE STORY

In Durbin's friend-of-the-court brief, which NRA describes as "scathing," he agreed with the plaintiffs that the present regulation does not reflect Congress's intent in enacting a law whose purpose was to make sure that debit-card "swipe fees" are reasonable and proportional to the cost of processing debit transactions. It sought also to promote competition among payment card networks and banks that issue debit cards.

Sen. Durbin's brief "highlights bad behavior by payment card networks, and the negative impact on small-ticket debit transactions," NRA reported.

The Fed's rule, as written, restricts large banks to a swipe fee of 21¢ per transaction, plus a portion of the transaction amount. The association pointed out that, although the new cap is less than the 44¢ average fee merchants paid before the law took effect, it has had a "perverse effect" on a segment of merchants. For example, quick-service restaurant operators with low average ticket prices have seen their rates increase, because Visa and MasterCard raised their rates to the new cap.

Last year, the National Automatic Merchandising Association warned that the Dodd-Frank legislation's new rules on debit card fees will deliver a damaging blow to the vending industry, which almost always processes small-ticket transactions when cashless payment services are available. | SEE STORY

NRA quoted Durbin as describing as "absurd" a situation in which card networks can charge a 22¢ interchange fee for processing a debit-card purchase of a 10¢ pencil.

The Fed's initial proposal for a 12¢ debit swipe-fee cap was more consistent with what Congress intended, Durbin said. But the financial services industry influenced the Fed's board to issue a final rule that deviated from Congress's intent, he charged. Congress never intended to allow bankcard companies to include fraud losses, network processing fees and other costs in their standard, as the rule allows, he explained. He thus is joining the plaintiffs in arguing that the Fed must adjust its rule.

The Federal Reserve has until June 1 to submit its response, after which a court date will be scheduled.

In addition to the National Restaurant Association, the suit was brought by Boscov's Department Store, the Food Marketing Institute, Miller Oil Co., NACS (formerly the National Association of Convenience Stores) and the National Retail Federation.