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Court Issues Ruling on Debit Card “Swipe Fees”

August 7, 2013

On July 31 the U.S. District Court for the District of Columbia ruled that the Federal Reserve (Fed) set interchange fees for debit card transactions higher than intended in the authorizing legislation, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). These fees have been come to be known as "swipe fees." Fed staff had initially recommended a 12-cent fee but issued regulations in 2011 stating that the fee could not exceed 21 cents.

The court found that the Fed "clearly disregarded Congress' statutory intent by inappropriately inflating all debit card transaction fees by billions of dollars." Before Dodd-Frank, swipe fees for debit cards were 1.2 percent of the transaction amount. The ruling affects only debit card transactions because credit cards and preloaded cards issued by banks with assets less than $10 billion are exempt from the interchange fee rules.

For most retailers, including campus stores, debit card fees represent the single largest operating expense behind payroll, argued NACS (The Association for Convenience and Fuel Retailing, formerly the National Association of Convenience Stores), one of the plaintiffs. Retailers typically have increased the prices of goods to offset the high interchange fee, especially for low-priced items. With lower swipe fees, institutions and campus stores could pass savings along to students.

The Fed will need to convene a new rulemaking process before it can lower the cap on fees. Until then, the existing rules remain in effect.

More information about timing and direction will be available after a status conference with the Court, which is tentatively scheduled for August 14. It should be known by September whether the Fed will appeal the decision.


Bryan Dickson
Senior Policy Analyst