A federal appeals court has upheld a lower court ruling vacating the Federal Reserve’s 21-cent cap on regulated debit card interchange fees, a decision welcomed by FMI – The Food Industry Association and other retail groups seeking lower payment processing costs.
The U.S. Court of Appeals for the Eighth Circuit issued its decision Oct. 26 in Corner Post, Inc. v. Board of Governors of the Federal Reserve System, affirming a lower court ruling that invalidated the fee cap established in 2011 under the Durbin Amendment to the Dodd-Frank Act.
The ruling represents a significant development in a longstanding dispute between retailers, financial institutions and federal regulators over the costs merchants pay to accept debit card transactions.
FMI, which filed an amicus brief supporting the challenge, said the existing cap has remained unchanged despite substantial reductions in banks’ debit transaction processing costs.
“Today’s decision is an important victory for grocery customers and food retailers in our long fight against unreasonably high debit card swipe fees,” said FMI president and CEO Leslie G. Sarasin.
Sarasin said Federal Reserve data show that banks’ processing costs have declined considerably since the regulation took effect, while the regulated fee rate has remained unchanged for 15 years.
The Durbin Amendment requires regulated debit card interchange fees to be reasonable and proportional to the costs incurred by card issuers. Retail organizations have argued that the Federal Reserve’s existing standard permits banks to collect fees exceeding those costs.
FMI called on the Federal Reserve Board of Governors to establish a revised rate reflecting current processing expenses and to implement a mechanism for regular adjustments.
“We applaud the ruling and urge the Federal Reserve Board of Governors to move quickly to establish a new debit regulated rate that reflects Congress’s intent, along with a process for regular updates going forward,” Sarasin said.
The decision does not itself establish a replacement fee cap. Any new regulated rate will depend on subsequent regulatory action, leaving the ultimate financial impact on grocery retailers and other merchants unresolved.