Why Retailers Are Suing the Fed
• Lawsuit seeks to have the Federal Reserve lower its 10-year-old cap on “swipe” fees that banks charge to process debit card transactions.
• Retailers say they have paid billions of dollars more than intended by Congress while banks’ costs have fallen.
• According to the National Retail Federation, legislation passed by Congress requires that these fees be kept in proportion to costs to protect merchants and their customers.
The National Retail Federation (NRF) said retailers filed a lawsuit April 29 seeking to have the Federal Reserve lower its 10-year-old cap on “swipe” fees that banks charge to process debit card transactions. According to NRF, the lawsuit contends the agency wrongly applied federal law and that merchants have paid billions of dollars more than intended by Congress while banks’ costs have fallen.
“The Fed allowed fees that were much too high in the first place,” NRF Chief Administrative Officer and General Counsel Stephanie Martz said. “Since then, banks’ costs have fallen steadily but the Fed has refused to make adjustments, letting the problem grow even worse. Legislation passed by Congress requires that these fees be kept in proportion to costs to protect merchants and their customers, but the Fed has failed to do that. Since the Fed hasn’t acted voluntarily, it’s time for the courts to enforce the law. Retailers are paying twice what they should and these fees ultimately drive up prices paid by the public. Banks should not be handed a growing windfall at the expense of Main Street stores and consumers.”
The suit against the Federal Reserve Board of Governors was filed by the North Dakota Retail Association and the North Dakota Petroleum Marketers Association in U.S. District Court in Bismarck. NRF said it is not a party, but Martz is co-counsel in the case.
“North Dakota merchants are willing to pay a reasonable fee for a service, but they’re tired of seeing Wall Street banks stick their hands into the pockets of local businesses,” said Mike Rud, president of the joint associations. “These fees are far higher than they need to be and take too much money out of the local economy.”
The lawsuit claims the cap is higher than allowed under the Durbin Amendment, a law passed by Congress in 2010 to address a “broken market” of soaring swipe fees set by Visa and Mastercard and lack of competition among the card-issuing banks that receive the fees.
The Durbin Amendment directed the Fed to set regulations resulting in debit card swipe fees that were “reasonable” and also “proportional” to banks’ costs, NRF said. But the suit argues that the Fed exceeded its authority by going beyond costs Congress said could be considered in writing its regulations. It seeks to have the cap recalculated and regularly adjusted if banks’ costs continue to fall in the future.
“For a decade, the board has failed to properly follow Congress’s instructions,” the lawsuit said. “Because the board has not done what Congress said to cure this market failure, American consumers and merchants continue to suffer the same harms that prompted Congress to act in the first place. Enough is enough.”
The Durbin Amendment limited costs the Fed could consider to incremental expenses in authorizing, clearing and settling transactions, the NRF stated, adding that the law specifically said other costs “shall not” be considered.
Since 2011, the Fed has reviewed banks’ costs every two years as required by Durbin but has failed to adjust its regulations to keep fees proportional as costs have fallen despite repeated concerns voiced by NRF and other retail groups, the suit said.
Brady Lund, owner of the Corner Post truck stop and convenience store in Watford City, N.D., said in a declaration filed with the suit that “inflated” swipe fees have meant higher prices for customers and lower profits for his business. Lowering the fees would let him charge lower prices and would “increase the Corner Post’s ability to continue as a going concern.”