Supreme Court Tells U.S. Retailers It’s Over

The U.S. Supreme Court has decided it will not consider a challenge to Federal Reserve regulations on the swipe fees merchants are charged for processing debit transactions.

Today’s action marks the end of a three-year federal court battle fought over tens of billions of debit-card transactions. As a result of 2010’s Dodd-Frank financial reforms, the Fed is now charged with ensuring interchange fees are reasonable and proportional to the actual costs of processing debit transactions. The Fed eventually settled on a cap of 21 cents - with some wiggle room built in for costs like fraud. That is lower than the 44 cent average banks were charging merchants before the rate cap, but higher than 12 cents The Fed initially proposed. Merchants were unsatisfied with the depth of the rate cut, or with the fact that banks could impose higher fees on small-dollar transactions.

The Fed’s rule “will unlawfully permit banks to inflate by billions of dollars each year the interchange fees they charge American merchants and, in turn, American consumers,” the challengers said in their appeal to the Supreme Court.

The industry groups representing retailers, supermarkets, restaurants, and convenience stores were the complaining parties in the case, with big name players such as Walmart and Starbucks filing amicus briefs that supported the challenge. The suit was also notably supported by Richard Durbin, one of the authors of the Dodd-Frank reforms.

The Fed, successfully argued the Justices didn’t need to get involved because the legal issues in the case had no implication beyond the debit-fee rules. Solicitor General Donald Verrilli, further noted that even under the retailers’ reading of Dodd-Frank, fees could still be capped at a rate insufficiently low for retailers.

In 2013 a federal judge sided with retailers, and ruled the Fed wrongly allowed the fees to include sunk costs for card issuers’ fixed costs like networking equipment and computer software that were largely tangential to processing individual debit transactions. The U.S. Court of Appeals for the District of Columbia Circuit reversed that decision in March 2014, on the grounds that was reasonable to allow fixed costs to factor into fee calculations.

Today’s ruling by Supreme Court left the D.C. Circuit’s ruling in place without comment, effectively ending the issue.



New forms of alternative credit and point-of-sale (POS) lending options like ‘buy now, pay later’ (BNPL) leverage the growing influence of payments choice on customer loyalty. Nearly 60 percent of consumers say such digital options now influence where and how they shop—especially touchless payments and robust, well-crafted ecommerce checkouts—so, merchants have a clear mandate: understand what has changed and adjust accordingly. Join PYMNTS CEO Karen Webster together with PayPal’s Greg Lisiewski, BigCommerce’s Mark Rosales, and Adore Me’s Camille Kress as they spotlight key findings from the new PYMNTS-PayPal study, “How We Shop” and map out faster, better pathways to a stronger recovery.

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