U.S. District Court Overturns Fed Swipe Fee Rule

September 11, 2013

pic-creditcard-swipeOn Wednesday, July 31, 2013, U.S. District Court Judge Richard Leon handed down a decision overturning the U.S. Federal Reserve’s (Fed’s) rule limiting the size of interchange (or swipe) fees that financial institutions (e.g. card-issuing banks, credit unions, etc.) can charge merchants every time a debit card is used to pay for a good or service. In response to the Court’s ruling, the Federal Reserve Board filed an appeal on Wednesday, Aug. 21.  Parties are required to file their pleadings by Wednesday, Aug. 28.

The Fed was required to implement a rule ensuring that the swipe fees charged for debit-card transactions are “reasonable and proportional” to the actual costs incurred by the issuer in processing the transaction. The rule was the result of an NSBA-supported amendment to the Restoring American Financial Stability Act (S. 3217), introduced by Sen. Dick Durbin (D-Ill.). The Fed’s proposed rule initially would have capped swipe fees at 12 cents per transaction, which still represented a windfall for big banks, as the Fed found that it costs banks only four cents to process the average debit-card transaction.

Unfortunately, due in large part to an intense advocacy campaign by the banking lobby, the final rule was significantly amended to reflect a cap of 21 cents per transaction. That rule was adopted on June 28, 2011 and went into effect on October 1, 2011. Prior to this rule going into effect, swipe fees had skyrocketed by more than 300 percent since 2001. In 2009, the average swipe fee was 44 cents per transaction.

Having long advocated for swipe fee reform, NSBA was pleased to see the Court’s decision and plans to remain active throughout this process and will members apprised of any relevant developments.