Restaurateurs, merchants and customers won a major victory when the United States District Court in Washington, D.C. ruled July 31 that the Federal Reserve’s final rule on debit-card transaction fees violated Congressional intent to issue regulations ensuring swipe fees for merchants were “reasonable and proportional” to the cost of processing the transactions.
“Upon consideration of the pleadings, oral arguments, and the entire record therein, the Court concludes that the Board has clearly 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 court stated in its opinion.
“The District Court’s decision is a tremendous victory for the restaurant and foodservice community and the over 130 million customers we serve every day,” said Scott DeFife, the NRA’s executive vice president of policy and government affairs. “In particular, this ruling should provide relief for merchants with small-dollar tickets on whom Visa and MasterCard used the Federal Reserve’s original final rule as an excuse to more than triple rates on those transactions.”
The NRA joined the Food Marketing Institute, the National Association of Convenience Stores, the National Retail Federation, Boscov’s Department Store and Miller Oil Company in filing a lawsuit against the Federal Reserve in 2012 over its final rule that included a 21-cent limit on swipe fees — a significant increase over the 7-cent safe harbor and 12-cent cap included in the Federal Reserve’s 2010 proposed rule. The Federal Reserve had been tasked with developing the rule by the “Durbin Amendment” — named for its lead advocate, Sen. Dick Durbin (D-Ill.) — of the 2010 Dodd-Frank financial services reform bill.
The NRA was a lead supporter of the debit-card fee reforms contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
After the Federal Reserve issued its final rule, Visa and MasterCard announced they would raise swipe fees to the Fed’s cap on small-ticket transactions of $15 and less, a move that hurt small businesses with heavy small-ticket volume, such as quick service restaurants.
The NRA and its co-plaintiffs also argued in their legal challenge that the final rule failed to promote the price competition among card networks that would help reduce network fees. The law intended to establish a competitive market dynamic between networks, such as Visa and MasterCard, to keep costs down. However, under the Federal Reserve's final rule, there would be no competition on signature debit routing and very limited, if any, competition on PIN transactions.
"The interchange transaction fee and network non-exclusivity regulations are fundamentally deficient,” the court stated in its opinion. “It appears that the Board completely misunderstood the Durbin Amendment's statutory directive and interpreted the law in ways that were clearly foreclosed by Congress."