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Appeals Court Rules Against Merchants on Debit Interchange

March 21, 2014

The U.S. Court of Appeals for the District of Columbia Circuit overturned a lower court decision that would have required even lower debit interchange price caps than those promulgated under the Fed’s interchange rule. The lawsuit filed by retail trade groups challenged the Fed’s interpretation of the Dodd-Frank Act which required it to cap swipe fees on debit-card transactions.

Under the Dodd-Frank Act the Fed was charged with setting swipe fees on debit transaction that are “reasonable and proportional” to the cost incurred for each transaction for financial institutions with at least $10 billion in assets. The Fed originally proposed capping the debit interchange fee at 12 cents per transaction, but then raised the cap to 21 cents plus 5 basis points of the transaction value. The three-judge panel ruled that that the Fed’s higher rate cap remain in place, which turns back a challenge by retailers which argued the Fed erred when it raised the rate from an initially proposed 12 cents/transaction.

ICBA and a coalition of trade associations filed a friend-of-the-court brief and participated in oral arguments in the case. John Buhrmaster, ICBA’s Chairman and President of 1st National Bank of Scotia, N.Y. called the ruling a reasonably good result, “But we should not lose sight of the fact that [the] Fed’s interpretation hurts consumers, hands billions of dollars to the biggest merchants, and does absolutely nothing to lower prices.”