Retailers to Appeal Dismissal of Debit Card Swipe Fee Lawsuit Over Statute of Limitations

"These fees are far out of line with what banks should be allowed to charge and we’re trying to get someone to pay attention."

NRF CAO and General Counsel Stephanie Martz

WASHINGTON – The National Retail Federation today said retailers plan to appeal a federal judge’s order dismissing a lawsuit seeking to have the Federal Reserve lower its cap on billions of dollars in “swipe” fees banks charge to process debit card transactions.

“It’s extremely disappointing to have this case rejected over the statute of limitations rather than giving merchants their day in court to show the harm these fees cause to them and their customers,” National Retail Federation Chief Administrative Officer and General Counsel Stephanie Martz said. “The lead plaintiff in this case wasn’t in business when these regulations were adopted and deserves to be heard. These fees are far out of line with what banks should be allowed to charge and we’re trying to get someone to pay attention. The Federal Reserve hasn’t addressed the facts or the intent of Congress, so we need the courts to step in. The plaintiffs in the case intend to appeal. In the meantime, retailers are paying twice as much as they should and swipe fees are driving up prices for consumers at a time when they can least afford it.”

U.S. District Judge Daniel Traynor dismissed the lawsuit Friday, citing a six-year statute of limitations even though the case was tied to a 2015 update of the Fed’s cap rather than the original 2011 regulations and a North Dakota store that began operation in 2018. The suit against the Federal Reserve Board was filed by the Corner Post Inc. truck stop and convenience store, the North Dakota Retail Association and the North Dakota Petroleum Marketers Association in U.S. District Court in Bismarck in April 2021. NRF is not a party but Martz is co-counsel in the case.

Nonetheless, the judge acknowledged that the fees have driven up costs for retailers and prices for consumers as debit card use has increased, and that banks “have profited greatly.”

The lawsuit claimed the cap is higher than allowed under the Durbin Amendment, a law passed by Congress in 2010 to address a “broken market” of soaring swipe fees set by Visa and Mastercard and lack of competition among card-issuing banks.

The Durbin Amendment directed the Fed to set regulations resulting in debit card swipe fees that were “reasonable” and also “proportional” to banks’ costs. But the suit argued that the Fed went beyond costs Congress said could be considered.

Congress limited costs the Fed could consider to incremental expenses in authorizing, clearing and settling transactions and said other costs “shall not” be considered. Based on that, the Fed initially proposed a limit of 7-12 cents per transaction. Under pressure from banks, however, it took fixed costs into consideration along with fraud losses, transaction monitoring and network processing fees. The final cap, which applies only to financial institutions with $10 billion or more in assets, was set at 21 cents plus 1 cent for fraud prevention and 0.05 percent for fraud loss recovery.

Since 2011, the Fed has reviewed banks’ costs every two years but has failed to adjust the regulations to keep fees proportional as banks’ costs have fallen.

A Fed survey found bank costs allowed under Durbin averaged 8 cents per transaction as of 2009. Based on that, 21 cents gave banks an average 163 percent profit, according to the suit. But the Fed found costs had fallen to 3.6 cents in 2017, increasing the average profit to a “stratospheric” 483 percent that “in other sectors might prompt antitrust or price-gouging investigations.” Banks were charging almost six times their average cost, compared with less than three times when the regulations first took effect.

The Fed’s latest survey, released after the lawsuit was filed, showed the average cost at 3.9 cents as of 2019, still leaving the fee at more than five times banks’ costs.

Before Durbin, banks charged about 45 cents to process a typical debit transaction, and regulation has saved merchants $9.4 billion a year, according to payments consulting firm CMSPI. A landmark study by economist Richard Shapiro found about 70 percent of the savings has been passed on to consumers.

Debit and credit card fees are among merchants’ highest costs after labor and drive up prices paid by consumers by hundreds of dollars a year for the average family. Debit swipe totaled $26.8 billion in 2020 and total card processing fees totaled $110.3 billion, up 70 percent over the previous decade, according to the Nilson Report.

About NRF
The National Retail Federation, the world’s largest retail trade association, passionately advocates for the people, brands, policies and ideas that help retail thrive. From its headquarters in Washington, D.C., NRF empowers the industry that powers the economy. Retail is the nation’s largest private-sector employer, contributing $3.9 trillion to annual GDP and supporting one in four U.S. jobs – 52 million working Americans. For over a century, NRF has been a voice for every retailer and every retail job, educating, inspiring and communicating the powerful impact retail has on local communities and global economies.