Appeals court strikes down Fed’s debit swipe fee cap
The Eighth Circuit ruled the 21-cent limit lets banks recover costs Congress did not intend, ordering the Federal Reserve to rewrite the rule in a win for retailers.
The US Court of Appeals for the Eighth Circuit has ruled that the Federal Reserve’s cap on debit card swipe fees is too high, as reported by NACS. It upheld a lower court decision that vacated the rule and sent it back to the Fed to be rewritten. The case was brought in 2021 by Corner Post, a convenience store and truck stop in North Dakota, together with retail trade groups.
Regulation II, introduced in 2011 under the 2010 Dodd-Frank Act, lets banks with $10 billion or more in assets charge up to 21 cents per debit transaction, plus 0.05% of the transaction value and one cent for fraud prevention. Dodd-Frank requires fees to be reasonable and proportional to banks’ costs. In a unanimous opinion, the court found that the Fed improperly allowed fraud protection and other expenses into the rate, and that only the incremental cost of processing each transaction should count.
Swipe fees are convenience retailers’ second-highest operating cost after labor.
“Rather than keep defending an illegal rule, the Fed should promptly replace it with one that complies with the law,” said Doug Kantor, NACS Senior Vice President of Government Relations and General Counsel. “Lower rates will be good for both retailers and their customers.”
The current cap remains in place until the court’s mandate is issued, and further appeals are possible, according to law firm Ballard Spahr’s Consumer Finance Monitor. The Fed proposed lowering the cap to 14.4 cents in 2023 but has not adopted it. A similar case is pending before the Sixth Circuit, where a contrary ruling could open the door to Supreme Court review.
