Fed faces aggressive deadline to fix caps on swipe fees

{mosads}Leon’s timeline is an aggressive one and comes just two weeks after he threw out caps originally set by the Fed as higher than what lawmakers had ordered. The banking industry is urging the Fed to appeal the ruling, but the Fed has yet to weigh in the matter itself.

Lawmakers mandated the fee caps as part of the Dodd-Frank financial reform law, in an amendment backed primarily by Sen. Dick Durbin (D-Ill.). The law ordered the Fed to set caps that are “reasonable and proportional” to the costs of processing a debit card transaction. Retailers have complained for years that banks overcharged for the service and pocketed the profits, while banks have argued the government has no business fixing prices for a service and that the move could lead to higher fees or reduced benefits for accountholders.

That amendment has been the focal point of a fierce lobbying battle ever since the law was enacted, which has shifted to regulators and now the courts as banks and retailers duke it out over billions of dollars.

In his July 31 ruling, Leon said the Fed “clearly disregarded” Congress’s intent when it finalized the debit card limits in October 2011. That limit, which could range from 21 to 24 cents depending on certain criteria, marked a big win for banks staunchly opposed to the caps. The Fed had originally proposed a ceiling of 7 to 12 cents; the industry average before the limits were put into place was 44 cents per transaction.

“This is a very fast turn-around for the Fed which will, on the one hand, eliminate any uncertainty about the future — but will also potentially mean an impact on credit unions sooner than later,” said Bill Cheney, president and CEO of the Credit Union National Association. “It is a serious issue for credit unions and we are exploring a variety of options to ensure credit unions’ interests are protected in any changes to the debit interchange regulation.”

Meanwhile, retailers made clear they would keep pushing for new, lower caps in place sooner rather than later.

“The court is absolutely correct that this is a multi-billion-dollar issue with huge implications for the U.S. economy and needs to be dealt with immediately,” said Mallory Duncan, general counsel for the National Retail Federation.