Judge Richard Leon, of the U.S. District Court for the District of Columbia, issued a memorandum opinion today that is arguably good for retailers, consumers and small businesses. The ruling, however, will hurt the bottom line for banks, credit unions and payment networks. The ruling will likely lead to lower swipe fees between end-user businesses and payment network operators.
The Durbin Amendment, part of Dodd-Frank, was designed to reduce burdens on retailers. But the Durbin Amendment also hurt a key revenue center for banks, swipe fees, by drastically lowering swipe fees on debit card transactions. Swipe fees are the fees charged to merchants every time a customer uses a card to make a purchase from a business.
The plaintiffs argued that the final rule set by the Board of Governors of the Federal Reserve System allowed banks to recover significantly more costs than permitted by the plain language of the Durbin Amendment. The court concluded that the Fed ignored Congress's intent by improperly inflating debit card transaction fees. The federal court ruled that the Fed did not have the authority to set the $0.21 cap on swipe fees, which has been in effect since October 2011.
The Fed will now have to go back and consider only appropriate bank costs, in accordance with the Durbin Amendment, when setting the new cap.
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