US judge rejects Fed's Durbin Amendment
31 July 2013
By Karuna Mintaka Kumar, Columnist
‘The Fed didn't have the authority to set a 21-cent cap on debit-card transactions’, U.S. District Judge Richard Leon in Washington, rejected the Dodd-Frank imposed rules governing ‘swipe fees’, in a ruling today morning.
In his 58-page ruling, Leon asserted, “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 rule would however remain in place pending new regulations or interim standards.
Visa -9.91(-5.18%), one of the predominant players setting the interchange fees, saw its share price plunge as news of Leon’s ruling hit the markets. The same shares shot up more than 10 percent, topping the S&P 500, after the cap was unveiled in 2011.
The Durbin Amendment that approved a 21-cent limit on swipe fees - half of the average swipe fee of 44 cents - went into effect on October 1st, 2011. It was slammed on the Dodd-Frank Wall Street Reform and Consumer Protection Act at the eleventh hour in an attempt to move a step closer to the retailers’ legislative agenda. Instead, it ignited a spark of unrest among varied stakeholders of the financial services industry.
In November 2011, National Retail Federation, the Food Marketing Institute and NACS, formerly the National Association of Convenience Stores filed a lawsuit stating the merchants would be substantially harmed by the fees the Fed set under the Durbin Amendment, a provision of the Dodd-Frank legislation. "The board's final rule permits banks to recover significantly more costs than permitted by the plain language of the Durbin Amendment and deprives plaintiffs of the benefits of the statute's anti-exclusivity provisions", the retailers argued in their complaint.
Refuting the retailers claim, Senator Richard Durbin insisted that small businesses and their customers would be able to keep more of their own money as a result of the amendment and it would make sure businesses would grow and prosper. ‘This is vital to putting our country back on solid economic footing’, he said in a statement.
The law may have been squarely aimed at big banks, but small banks have paid a price in the bargain.
Chairman Ben Bernanke spoke on several occasions expressing fear about how the new rule would affect small banks. He maintained the cap aimed to strike a balance between retailers, banks and consumers but left the door open for future changes. “The Fed would continue to monitor the consequences of the new caps and assess whether the statute and the rule are accomplishing their intended goals”, Bernanke noted in a statement after the Amendment was passed.
Leon’s ruling today echoes the voices of retailers who have been fighting against the law since November 2011.