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Big Win For Retailers Over Banks In New Debit Swipe Fee Ruling

This article is more than 10 years old.

It's back to the drawing board for banks and retailers over the heated debit card swipe fee debate.

A judge today rejected a rule set by the Federal Reserve back in October 2011 which capped the amount banks could take from retailers when consumers swipe their debit cards.

The judge said the Fed's rule "disregarded Congress’s statutory intent by inappropriately inflating all debit card transaction fees by billions of dollars and failing to provide merchants with multiple unaffiliated networks for each debit card transaction."

The case goes back to Dodd-Frank regulations and the way banks charge merchants each time a consumer uses their debit card.

The Durbin amendment called to cap so-called interchange fees banks charge retailers at 12 cents per transaction, but the Fed later made a rule that would cap them at 21 cents. (Originally there was no cap and the average charge was about 44 cents.)

The Fed's 2011 rule came after hard lobbying from both banks and retailers.

The 21 cent cap was good news for banks like JPMorgan Chase and Bank of America and card companies like Visa and Mastercard who get a significant chunk of revenue on those swipes fees, but it bad news for retailers who thought they’d be getting a major break on the fees bank and card companies collect from them.

After the Fed's rule was announced retailers shot back with a lawsuit claiming the rule was unfair and the cap still too high. The National Retail Federation was among the plaintiffs the judge ruled in favor of today.

The NRF said in a statement today after the judge's ruling, “Congress clearly told the Fed to introduce competition and transparency into the debit card marketplace by making multiple networks available, so as to reduce swipe fees for merchants and their customers. The Fed failed to do so, and the court rightly ruled against them as a result. Today’s decision is the first step in setting these initial wrongs right and will ensure that swipe fee reform is done correctly.”

For banks, the judge's decision is a big blow since revenues are already difficult to grow these days as interest rates remain at historic lows. Their argument has been that the swipe fees are necessary to cover the costs of fraud prevention. They argue that they'd have to charge customers through other measures to make up for the lost revenue.

The judge has set Aug. 14 court hearing to decide what happens next.