Who says that all retailers are pro-swipe fee reform? A new lawsuit filed Wednesday morning against the federal government by a consortium of national retail trade organizations turns that notion right on its head.
The suit, lead by plaintiffs that include the National Retail Federation and the National Association of Convenience Stores, claims that the Board of Governors for the Federal Reserve System in Washington, D.C., failed to look out for merchants when its concessions were made between banks and the government to raise the swipe fee cap from an original 12 cents to 21 cents per debit card transaction this past summer.
The retailer group is now asking that portions of the rule be voided where necessary along with other relief.
Is the Durbin Rule Valid?
What’s in question is whether the final version of the Durbin Rule complied with provisions included in the Dodd-Frank Act of 2010 requiring the Federal Reserve to create legislation that would result in debit interchange fees that are both “reasonable” and “proportional” to the amount banks pay to processes such transactions. By increasing the cap to 21 cents per transaction from the originally proposed cap of just 12 cents per transaction, the retail groups say the Federal Reserve allowed the nation’s largest banks to continue gouging the pockets of merchants.
The retailers are also arguing that the 21 cent cap, which excludes an additional one cent plus 0.05 percent of the transaction to cover fraud costs, discourages competition amongst credit card issuers. Under the previous version of the legislation, merchants are required to be given a choice of at least two credit card networks for each transaction they accept. Yet, banks have been able to limit their cards so that merchants only have one choice under current rules, according to the retail groups. Less competition also means that, even if a bank is able to process debit card transactions more efficiently, they must still pay the same debit card interchange fee that less efficient banks pay.
“Rather than following the law, it’s almost as if the banks and the Fed were working hand-in-glove to block the genuine competition and common-sense price reductions Congress directed,” said NRF senior vice president and CEO general counsel Mallory Duncan in a statement. “The Fed’s regulations have blunted the competition that would have made greater savings possible.”
Some Retailers Take A Hit After Fee Changes
Other concerns the retail trade organizations expressed in their lawsuit was the increase in swipe fees merchants that accept small-ticket purchases—or, purchases of $11 or less. Both Visa and MasterCard, two of the nation’s largest networks, made the decision to eliminate interchange fees for small ticket purchases earlier this year.
One of the plaintiffs, gas station and convenience store chain Miller Oil Company of Norfolk, Va., claims prior to the Durbin rule kicking in, the company paid an average of just 10 cents per transaction, plus a 1.5 percent fee.
“Contrary to the purpose of the Durbin Amendment, Miller will actually pay higher interchange transaction fees on the average transaction under the Board’s Final Rule than it would have under the prior system” charged court documents. “Miller will suffer significant and irreparable monetary injury directly traceable to the Board’s misconstruction of the Durbin Amendment.”
Other plaintiffs included in the lawsuit are the Food Marketing Institute and Boscov’s Department Store LLC. According to the lawsuit, the amount of interchange fees that merchants pay has more than tripled between 2001 and 2010 from $16 billion per year to $50 billion.