WASHINGTON -- The U.S. Supreme Court has denied a petition by the National Association of Convenience Stores (NACS), the Food Marketing Institute (FMI), the National Retail Federation (NRF), Boscov's Department Stores, the National Restaurant Association and Miller Oil Co. that challenged the Federal Reserve's rule on debit-card interchange fees.
As reported in a 21st Century Smoke/CSP Daily News Flash, the high court's action, which came in a brief written order, removes lingering uncertainty for the banking industry by ending a three-year federal court battle over fees associated with tens of billions of debit-card transactions annually.
NACS and the other plaintiffs filed suit to challenge the amounts of those debit-card swipe fees and lack of merchant choices for network routing under the Fed's rule, the association said. The lawsuit argued that the rule was not consistent with the language of the law passed by Congress as part of the Dodd-Frank Consumer Protection & Wall Street Reform Act of 2010.
Under Dodd-Frank, the Federal Reserve was required to adopt regulations that would result in debit-card swipe fees that were "reasonable and proportional" to the actual cost of processing a transaction. Incremental costs of authorizing, clearing and settling each transaction were allowed to be considered but fixed costs were not. Federal Reserve staff calculated the average incremental cost at four cents per transaction and initially proposed a cap no higher than 12 cents, but the Federal Reserve Board of Governors eventually settled on 21 cents after heavy lobbying from the financial services industry.
The Fed's rule "will unlawfully permit banks to inflate by billions of dollars each year the interchange fees they charge American merchants and, in turn, American consumers," the challengers said in their appeal to the Supreme Court, reported The Wall Street Journal.
The Fed, represented by U.S. Solicitor General Donald Verrilli, said in a high-court filing that its actions were reasonable and argued the justices didn't need to get involved because the legal issues in the case had no implications beyond the debit-fee rules. It also said that even under the retailers' interpretation of Dodd-Frank, there was no guarantee that the Fed would cap debit fees as low as the merchants wanted.
A federal trial judge sided with the merchants in 2013, saying the Fed wrongly allowed the fees to encompass card issuers' fixed costs like networking equipment and computer software that had nothing to do with the incremental costs of processing individual debit transactions. The U.S. Court of Appeals for the District of Columbia Circuit reversed that ruling last March, saying it was reasonable to allow such fixed costs in the fee calculations.
The Supreme Court left the D.C. Circuit's ruling in place without comment.
"It is unfortunate that the Supreme Court would not hear about the legal problems with the Federal Reserve's debit swipe fee rules," said NACS senior vice president for government relations Lyle Beckwith. "Banks should not be allowed to use centrally price-fixed fees to make margins of 500% to 1,000% or more on debit swipe fees. The Supreme Court would have recognized that those fees are not consistent with the reforms passed by Congress, and it's unfortunate they won't have the chance to make that decision. Nonetheless, the Fed should now see error of its ways and revise its rules to correct the gross deficiencies in them."
The NRF also expressed disappointment.
"The court's decision is disappointing because it leaves merchants and their customers paying far more than intended by Congress," NRF senior vice president and general counsel Mallory Duncan said. "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."
"Banks will benefit from this ruling but the battle over swipe fees isn't over," Duncan said. "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."
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.