Supreme Court Axes Swipe Fee Petition

The U.S. Supreme Court has declined to hear retailers' challenge to the Federal Reserve’s debit card interchange fee rules. The denied petition, which asked the justices to review an appellate court ruling on whether the Fed set a 2011 cap on debit card swipe fees higher than the level sought by Congress in legislation passed a year earlier, was filed last August by trade organizations including the Food Marketing Institute (FMI); the National Association of Convenience Stores and the National Retail Federation (NRF), which were among the plaintiffs in the original lawsuit.

"We are disheartened that the Court rejected our case, reflecting utter failure to recognize the significance the swipe fee issue holds for consumers and American businesses," noted Leslie G. Sarasin, president and CEO of Arlington, Va.-based FMI. "The food retail industry, on average, operates at a 1-to-2 percent profit margin, so every penny matters. When transaction fees are arbitrarily set by the big banks and the card companies they service, this becomes a matter of justice that threatens the economic survival of community grocery stores, businesses, charities, schools and every institution utilizing a debit and credit cards payment system. We now look to the Fed to improve this rule and carry out both the clear language of the statute and the intent of Congress."

"The court's decision is disappointing because it leaves merchants and their customers paying far more than intended by Congress," explained Mallory Duncan, SVP and general counsel at Washington, D.C.-based NRF. "Federal agencies have flexibility in implementing our nation's laws, but do not have the discretion to blatantly ignore the wishes of elected officials and the clear language of the statute. The court's ruling means retailers will keep paying billions of dollars more than they should, and that fee-hungry banks will continue to rake in unearned profits that ultimately come out of consumers’ pockets. We will continue to press the issue."

Added Duncan: "Banks will benefit from this ruling, but the battle over swipe fees isn't over. There is still litigation pending on credit card swipe fees, and policymakers continue to be concerned by the anti-consumer and anti-competitive practices of the card industry."

Indeed, the banking industry approved of the petition's rejection, although it admitted that the legislation as it stood still presented a problem. "The Supreme Court has reached the right result today, but we shouldn’t lose sight of the fact that the underlying policy — the Durbin Amendment — has not accomplished its goal of lowering prices for consumers," said Frank Keating, president and CEO of the American Bankers Association, also based in Washington. The Durbin amendment, a late addition to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, contains the language relating to the cap on swipe fees charged to merchants.

The retail industry believed it had achieved a legislative victory when the amendment (named for Sen. Richard Durbin, D-Ill.) passed as part of Dodd-Frank, but the Fed's final ruling the following year to implement the law ended up setting off a legal battle. The final rule permits banks to collect 21 cents, in addition to a fraud adjustment, for each transaction, instead of the original Fed proposal of 7 to 12 cents. According to retailers, the rule overstepped the bounds of what was contained in the statute or what Congress intended.