On July 1, the United States Supreme Court (SCOTUS) properly ruled against the Federal Reserve Board (Federal Reserve), which was seeking dismissal of a retail merchant lawsuit. The underlying claim is that payment networks have been permitted to charge excessive interchange fees in violation of the Durbin Amendment to the Dodd-Frank Wall Street reform and Consumer Protection Act of 2010. The dismissal was sought under a theory that the plaintiff’s had filed the lawsuit after the expiration of the statute of limitations. They had not.
In simple terms, the Durbin Amendment requires the Federal Reserve to adopt interchange fees (or “swipe fees”) which are “reasonable” and “proportional” to banks’ costs [1]. Interchange fees are the fees paid to card issuing banks to cover various costs associated with credit card transactions, including fraud and bad debt. The original cap, intended to be 7-12 cents, ballooned to 22 cents, plus .05 percent for fraud loss recovery after legislative pressure from banks to add in additional fraud losses, transaction monitoring, and network processing fees. The cap has been reviewed by the Federal Reserve every two years, as required, but they failed to make adjustments in line with falling costs. The Federal Reserve’s failure to make appropriate adjustments, and the resulting unreasonable and disproportionate interchange fees, has resulted in monetary losses for both merchants and consumers.
If, as is quite possible, the Federal Reserve chooses to move forward with a corrected downward adjustment of interchange rates, both consumers and merchants stand to benefit from lower cost debit and credit transactions. An interchange increase seems like an unlikely scenario with the current trend in bank costs.
We will continue to keep an eye on this litigation in the months (and maybe years) ahead. If you are interested in reading more, the name of the case is Corner Post, Inc. v. Board of Governors of the Federal Reserve System[2], which has been remanded to the Eighth Circuit Court of Appeals. The SCOTUS docket number is 22-1008.
[1] Limited to financial institutions with more than $10 billion in assets.
[2] Thank you to the National Retail Federation which, while not a party to the lawsuit, has served as co-counsel through their General Counsel and provided information on the matter through its publications.
Thomas Clement
MRA Chief Operating Officer and General Counsel
