Retailer Debit Fees Must Come Down, Judge Says

Retailers scored a victory on Wednesday (July 31) when a federal judge ruled that 21 cents is still too much for debit card transaction fees. But the current cap will remain in place until the rules are revised, Bloomberg reported.

U.S. District Judge Richard Leon ruled that the Federal Reserve considered data it wasn't allowed to use in setting the 21 cent cap under the Dodd-Frank law. The cap, which has been in effect since October 2011, was originally set at 12 cents by the Fed before an outcry by banks.

The Fed "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," Leon ruled, saying that the Dodd-Frank law only allowed the Fed to consider the incremental cost associated with authorization, clearing and settlement of an electronic debit transaction in calculating the cap.

Retailers had argued that the Fed "invented" a category of costs not mentioned in the law, thus giving itself complete discretion in setting the cap.

Unless it's overturned, the ruling means retailers can expect that the fees for a debit-card transaction will go down—eventually. There is no timetable for the Fed to set a new cap, but Judge Leon said he was inclined to give the Fed "months, not years" to fix the problem.

The ruling comes amid a flurry of lawsuits over whether Visa's (NYSE:V) and MasterCard's (NYSE:MA) interchange rate-setting is legal under antitrust law, both in the U.S. and Europe. In addition, a $7.25 interchange lawsuit settlement that will affect all retailers that take payment cards, whether they like it or not, is heading toward a final decision by a federal judge in Brooklyn in the fall.

For more:

- See this Bloomberg story

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