Banks Expected to Fight Swipe Fee Reform on Legal Front
NEW YORK -- One week after the Senate failed to adopt an amendment that would have delayed swipe fee reform by at least six months, talk of the banking industry bringing its battle to the courts is getting louder. CSNews Online first reported the possibility of a legal move last week.
The banking industry -- which launched a massive lobbying effort to delay any rule changes on swipe fees -- is now taking a wait-and-see approach with the Federal Reserve. In December, the Fed issued a proposal capping the fees banks can charge on debit card transactions at 12 cents. The Fed is expected to issue a final rule by the July 21 implementation date.
However, according to a report by Dow Jones Newswires, the banking industry is expected to launch a legal challenge if there are no significant changes made to the proposal. The industry will likely allege that the Fed misinterpreted the law.
Following its defeat in the Senate, the industry, according to lawyers and executives, intends to say that the Fed should never have imposed a hard cap on fees and that the cap it did impose is illegally low, the news outlet reported. The banking industry will likely use the Administrative Procedure Act for its legal cudgel. That law governs how government and independent agencies carry out their tasks. It sets the rules for public comment periods and ensures agencies don't create rules in an arbitrary or capricious manner.
The industry faces one major stumbling block. According to the report, the courts give agencies plenty of room to make rules.
The first leg of the legal battle may have already begun. As Dow Jones Newswires reported, TCF Financial Corp., a Minnesota bank and one of the largest debit-card issuers, sued the Fed in October, arguing that large financial institutions are unfairly targeted. A hearing Thursday in a federal appeals court will give TCF a second chance at an injunction to stop the rule. TCF spokesman Jason Korstange said the bank expects an appeals ruling by July and continues to be confident.
And as the debit fee debate carries on, some are hoping credit card reform is not far behind. Today, the U.S. Department of Justice Antitrust Division submitted a a final consent decree in its enforcement action against Visa and MasterCard to address some of the anti-competitive practices related to credit cards, according to a release from the Food Marketing Institute (FMI).
"This is just a first step, but a vital one, to help alleviate some of the card network restraints on FMI members' ability to provide discounts to their customers. This enforcement action is focused on anti-competitive practices related to credit cards and reinforces the need for credit card transactions to be subject to the same reforms authored by Sen. Durbin related to debit cards," said Leslie G. Sarasin, president and CEO of FMI.