Fed appeals ruling on ‘illegal’ debit-card fee
THE US Federal Reserve has appealed against a finding that its rules on debit-card transaction fees are illegal, a lawyer for the central bank said in Washington.
General counsel for the bank, Scott Alvarez, notified US District Judge Richard Leon of the appeal on Wednesday. The hearing came after retailers battling banks over debit-card transaction costs were handed a victory by Judge Leon, who said merchants were overcharged billions of dollars under an unlawful swipe fee set by the Fed. The decision, unless overturned on appeal, will force regulators to revisit rules that bankers said will cost them 45% of their swipe-fee revenue.
Lenders collected about $16bn annually from those fees before the Fed’s regulation.
The ruling also threatens to erode Visa’s dominance of the US debit-card market and benefit smaller rival MasterCard as merchants would have more say about how transactions are processed.
In his July 31 ruling, Judge Leon said the Fed considered data it was not allowed to use under the Dodd-Frank law in setting the cap on the so-called swipe fees at 21c, and neglected to bolster competition in card networks.
The Fed has taken a position that will drag this out while retailers and their customers … pay billions in inflated fees
Mr Alvarez said it would be unreasonable to ask the Fed to craft new fee limits at the same time that the agency was asking an appeals court to approve its initial cap. He said if Judge Leon did not stay his ruling, the Fed would ask the appeals court to do so. Judge Leon said he would “keep an open mind” as he considered it.
“The Federal Reserve’s decision to appeal is the right thing to do for consumers who value debit cards and the financial institutions that serve them,” Frank Keating, president of the American Bankers Association, said.
The National Retail Federation criticised the appeal. “We are very disappointed to see the Fed giving in to the banks. The Fed has taken a position that will drag this out while retailers and their customers continue to pay billions of dollars in inflated fees.”
Visa shares fell slightly to $177.87 yesterday while MasterCard shares rose 0.12% to $620.17 in New York.