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The Federal Reserve catered to banks instead of following Congress’ instructions regarding the reform of debit card swipe fees, attorneys for merchants contended this week in federal court. The Food Marketing Institute, National Association of Convenience Stores, National Restaurant Association and National Retail Federation have filed a lawsuit against the Reserve in the U.S. District Court for the District of Columbia challenging the Fed’s rules governing debit card swipe fees.
All of the organizations are members of the Washington, D.C.-based Merchants Payments Coalition (MPC), a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, online merchants and other businesses that want a more competitive and transparent card system.
“Congress was clear about setting reasonable debit swipe fees and ensuring greater competition among card networks. It’s also clear that the Fed ignored Congress,” noted Doug Kantor, an attorney representing the merchants.
Fees charged to swipe both debit and credit cards for purchases come to about about $60 billion in revenues for banks and credit card companies. For merchants, swipe fees are the second-highest cost, after labor. Swipe fees also have tripled since 2004, even though technology has lowered the cost of card transactions.
Part of Congress’ Dodd-Frank law included the Durbin Amendment, which sought to bring competition to debit card networks that process the transaction and to lower the fees for using debit. The amendment instructed the Fed to set debit swipe fees that are “reasonable” and “proportional” to the banks’ costs. The Fed had determined the cost to be 4 cents per swipe.
After Durbin passed, the Fed reduced debit swipe fees from an average 42 cents per transaction to 12 cents. According to the MPC, however, the big banks then applied pressure to the Fed, forcing the regulator to set the debit swipe fees at 21 cents -- five times the banks’ actual cost -- plus .05 percent of the transaction and another 1 cent for fraud prevention.
The Fed also weakened Congress’ plan to make the debit card industry more competitive by not letting merchants choose among networks to process a sale, the retailers allege, resulting in fewer savings for consumers and businesses, and higher debit card fees for purchases under $15.
The MPC continues to work for credit card reform, as well as correcting the implementation of the Durbin Amendment, which went into effect a year ago this month.
Visa and MasterCard together control 80 percent of the credit card market.