Swipe Fee Showdown: Fed vs. Retailers
WASHINGTON, D.C. -- The fight over debit card swipe fees took center stage in appellate court today.
A three-judge panel at the U.S. Court of Appeals for the District of Columbia Circuit began to hear arguments in the Federal Reserve's legal challenge of Judge Richard Leon's July 31 decision to strike down the debit card swipe fee rules that have been in place since October 2011.
In his ruling, Leon said the Fed disregarded Congress' intent when it decided how much banks can charge retailers to process debit card transactions. As part of the decision, the Fed was instructed to rewrite the rules governing swipe fees. The current rules, in part, include a 21-cent cap, as CSNews Online previously reported.
The Federal Reserve swipe fee rules drew rumbles from both sides of the transaction equation. Banks argued the cap was too low to cover their costs and make a reasonable profit. Retailers argued swipe fees -- which had averaged around 44 cents -- would be lower if the Fed had followed the guidelines in the Dodd-Frank financial regulation law, as Bloomberg Businessweek reported.
Shortly after the swipe fee rules were implemented, a group of retail associations including NACS, the Association for Convenience & Fuel Retailing; the Food Marketing Institute; the National Restaurant Association; and the National Retail Federation filed suit claiming they would be "substantially harmed" by the fees set by the Fed.
According to Reuters, the U.S. Court of Appeals judicial panel appeared to side with the Fed during the hour-long appearance Friday morning. The three-member appeals panel pushed back against the retailers' argument that the Fed's fee cap could only incorporate certain costs to banks that were identified by Congress.
"You're climbing a really steep hill...none of us buy that," Judge Harry Edwards said to Shannen Coffin, an attorney with Steptoe & Johnson who is representing the retailers. The appeals panel did appear open to discussing whether each of the particular costs included by the Fed was appropriate, the news outlet reported.
In 2011, the central bank decided labor, software, network processing fees and allowances for fraud losses were relevant costs under the wording of Dodd-Frank; however, retail groups argued that those costs went beyond what was allowed under Dodd-Frank, according to the report.
During today's session, the appeals panel also asked Katherine Wheatley, the Fed's associate general counsel, how the agency determined which costs it could consider. For instance, Judge David Tatel pointed out the Fed did not include corporate overhead.
"Help me understand how the board distinguished between those it included and those it didn't," Tatel said.
Wheatley said the agency included only costs it could tie directly to debit card transactions, Reuters reported.