No Change in Interchange

Judge agrees to delay swipe fee ruling; current cap to stay in place while Fed appeals

Richard Leon

Richard Leon

WASHINGTON -- The U.S. Federal Reserve may continue with the current cap on debit-card interchange or "swipe" fees while it appeals a July ruling that rejected it, a federal judge ruled in an order made public on Friday, reported Reuters.

U.S. District Judge Richard Leon ordered his own ruling stayed, pending one from a higher court, the U.S. Court of Appeals for the District of Columbia Circuit.

The 2010 Dodd-Frank financial regulatory law directed the Fed to limit swipe fees, which banks charge merchants when customers use debit cards.

In a lawsuit brought by retailers and restaurants, Leon ruled on July 31 that the Fed's cap of 21 cents per transaction was higher than Congress intended. It was a win for retailers over banks and card companies such as Visa Inc. and MasterCard Inc.

The Fed appealed the ruling in August. Appeals typically take at least several months before the court rules.

"Upon consideration of those pleadings, oral arguments and the entire record, I conclude that the stay should remain in place while our Circuit Court reviews my decision," Leon wrote in the ruling, according to a Bloomberg report.

The decision to grant a stay marks a reversal for Leon, said report by The Wall Street Journal. Previously, Leon said he was not inclined to grant the Fed's request. But the court was under pressure from the Fed and the merchants who sued the central bank over its rules governing swipe fees, saying banks would sharply raise fees if current rules were immediately scrapped.

The case centers on the fees banks and card companies charge merchants for the ability to accept debit cards from customers. The Fed was required by the 2010 Dodd-Frank financial law to sharply reduce the fees, but retailers sued the central bank, saying the Fed did not go far enough,

Leon agreed, saying in a July ruling that the Fed had misinterpreted the law.

Merchant groups have argued that banks and card companies have inflated swipe costs well beyond what it costs them to process a debit-card payment. Banks counter that swipe fees help cover their costs to prevent card fraud and the infrastructure for a payment system that allows customers immediate access to their funds around the globe.