The Eighth Circuit on Monday struck down the Federal Reserve’s debit-card swipe-fee cap, delivering a major victory to merchants seeking lower charges.
Lower fees could reduce retailers’ costs, but shoppers are not guaranteed lower prices.
The ruling does not take effect immediately, and banking groups warn that reduced revenue could affect the cost of checking accounts.
An increasing number of retailers charge consumers a fee for using credit or debit cards. The fee for debit cards could be going down.
A federal appeals court on Monday struck down the Federal Reserve’s longstanding cap on debit-card swipe fees, handing merchants a major victory in their fight over the charges banks collect when customers pay with debit cards.
The U.S. Court of Appeals for the Eighth Circuit affirmed a lower-court judgment invalidating the Fed’s 21-cent base cap and sent the matter back to the agency to develop a fee structure consistent with federal law. The case was brought by Corner Post, a North Dakota truck stop and convenience store.
The disputed rule, adopted in 2011, generally limits interchange fees for debit cards issued by institutions with at least $10 billion in assets to 21 cents plus 0.05% of the purchase amount. Eligible issuers can collect another penny for fraud prevention.
For a $100 purchase, that formula allows an interchange fee of up to 27 cents. Interchange is paid by merchants to card issuers and is one component of a business’s overall card-processing bill. Smaller issuers are exempt from the cap.
Basis of the ruling
The appeals court concluded that the Fed improperly included fixed expenses in its calculation rather than focusing on the additional costs of processing individual transactions, as Congress required under the Durbin Amendment to the Dodd-Frank Act. It did not establish a replacement fee.
Merchants have argued that the existing formula lets banks collect excessive fees. In a February brief supporting Corner Post, the National Federation of Independent Business and other merchant organizations said the rule imposes unreasonable costs on businesses and consumers.
For consumers, the potential benefit is indirect: If a revised rule lowers merchants’ payment costs, businesses would have more room to reduce prices or absorb other rising expenses. Whether shoppers receive those savings would depend on retailers’ pricing decisions and competitive pressures.
There is no requirement in Monday’s decision that stores lower prices, and the ruling does not award consumers refunds.
Banking organizations argue that consumers could face costs elsewhere. The American Bankers Association says interchange revenue helps support affordable checking accounts, rewards and payment security.
Industry arguments
The Independent Community Bankers of America has argued that merchants would retain savings and that deeper fee reductions could undermine secure debit transactions. Those are industry arguments, rather than established outcomes of Monday’s ruling.
That creates a possible tradeoff for households: Lower merchant costs could ease pressure on retail prices, while banks could respond to reduced revenue by changing account fees, minimum-balance requirements or benefits.
Consumers should not expect an immediate change at checkout. The court said its decision becomes effective when it issues its formal mandate. Parties have 45 days to seek rehearing, with the mandate ordinarily following seven days after that deadline or an order denying rehearing.