Federal Appeals Court Appears to Side with Federal Reserve in Swipe Fee Hearing

A federal appeals court composed of a three-judge panel heard arguments last Friday on the Federal Reserve’s appeal of U.S. District Court Judge Richard Leon’s ruling that the Federal Reserve failed to implement the Durbin Amendment fairly. The panel appeared to side with the Federal Reserve.

In the swipe fee hearing, Judge Harry Edwards told Shannen Coffin, “You’re climbing a really steep hill…none of us buy that,” regarding the retailers’ claims that the Federal Reserve’s implementation of the Durbin Amendment took into account the costs to banks that were not explicitly identified by Congress.

The Durbin Amendment, part of the Dodd-Frank Act, called for the interchange or swipe fees of debit cards to be lowered in hopes that the fees would be more fair and that the savings would be passed down to consumers.

The Fed was appointed to regulate these interchange, or swipe fees, and they set the cap to 21 cents per transaction, an increase of their own in-house recommended 12-cent cap after major disapproval from FIs.

Judge Leon ruled in July of 2013 against the Fed, and they had to rewrite the rules on these capping of debit swipe fees. Leon concluded that along with taking account of costs it shouldn’t have, the Fed also didn’t do enough to promote competition.

The Fed appealed, hoping to raise the cap in order to take into account other costs of transactions that were not considered when finalizing the 21-cent cap, while also stating that the Durbin Amendment was not worded to put the responsibility of promoting competition on the Fed.

Naturally, retailers want the cap to be lowered, and while the FIs are set to lose an estimated $8 billion a year if the cap remains at 21 cents, retailers claim that lowered fees means more savings to consumers.