Retailers Sue the Federal Reserve to Lower Debit Fees

By: Jacey Kaps, CIPP/US, PCIP


Retailers have filed suit to press the Board of Governors of the Federal Reserve System for lower debit fees. This action arises from the recent Final Rule Legislation, 12 C.F.R. § 235.1-235.10 (2011), effective on October 1, 2011. The Final Rule Legislation establishes debt interchange transaction fees, the fee charged by debit card issuing banks to merchants that accept those debit cards.  The Final Rule legislation sets a per transaction fee applicable to purchases made with a debit card, equal to 21 cents per transaction plus ad valorem adjustment for fraud losses of 5 basis points of a debit card transaction value. 12 C.F.R. § 235.3(b). 

The named Plaintiffs, The Association for Convenience & Fuel Retailing, The National Retail Federation, The Food Marketing Institute, Miller Oil Co., and Boscov’s Department Stores, LLC, are dissatisfied with this structure because it allows banks and card companies to add up to 5 basis point to each transaction to recover a portion of fraud losses. The retailers contend that the Final Rule “essentially double[s] the allowable costs recoverable by an issuing bank under the alternative standards proposed in the” Notice of Proposed Ruling Making (“NPRM”). 75 Fed.Reg. 81, 734 (Dec. 28, 2010). The NPRM largely followed the letter of the Durbin Amendment. The NPRM provides two alternative standards for complying with the debit card interchange fee standard, which limited allowable costs that can be recovered. Under both alternatives, the  allowable interchange could not exceed 12 cents per transaction. 

The retailers argue that the Final Rule Legislation’s interchange fee standard violates the Administrative Procedure Act, 5 .S.C. §§ 706(2)(A), 706(2)(C).  The retailers also state that the Final Rule exceeds the statutory authority delegated to the Board by the Durbin Amendment and is an unreasonable interpretation of that statute.” See 920(a)(1), 15 U.S.C. § 1690-2(a)(1).  Another strong argument raised by the retailers is that, Banks can include in their fees the cost of updates to their processing equipment, benefiting the overall bank and card companies’ operations, even though the updates may not be directly related to a specific debit card transaction. The retailers note that this is contrary to the Durbin Amendment. 

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