Swipe fees battle is still not over

By Norm Schultz

June 12, 2014

When Yogi Berra uttered his famous “You wouldn’t have won if we’d beaten you,” he could have been talking about the nation’s retailers and their courtroom loss in their quest for lower debit card swipe fees. Now the case could end up in the Supreme Court.

The battle began when Congress was considering the Dodd-Frank financial reform bill. During hearings, retailers complained to lawmakers that the swipe fees banks charged, which averaged 44 cents per transaction, were too high. It resulted in an amendment to the Dodd-Frank bill directing the Federal Reserve to set a “reasonable” fee.

That immediately ignited a big-time lobbying war with retailers supporting the amendment and bankers fighting it by claiming lower swipe fees would cost them billions of dollars that they use to pay for other services, such as free checking and fraud prevention.

After Dodd-Frank passed, the Fed, in biblical King Solomon style, cut the allowable fee in about half to 21 cents per transaction. But a study found that while this cap would save retailers about $8.5 billion a year in fees paid, some $12.5 billion could be saved if it were set at the “proper level.” Still not satisfied, the retailers cried foul, saying the Dodd-Frank law intended the cap to be lower. Retailers, led by big groups like the National Retail Federation, National Restaurant Association and several others, filed suit against the Fed.

In July 2013, the retailers won a major victory as a U.S. district court judge found for the retailers and ordered the Fed to set the fees even lower. As expected, the banks cried foul and the Fed filed an appeal. Last March, a three-judge appeals court reversed the lower court’s decision and upheld the Fed’s swipe fee of 21 cents.

That loss for retailers left only two possibilities if the battle is to continue — an appeal by the retailers to the full appellate court or to go directly to the Supreme Court to see whether or not it will hear the case. The retailers have chosen the latter, holding that the Fed has acted “in direct contradiction of what Congress passed” and that the issues “are sufficiently important” that they need to be decided by the nation’s highest court.

Many marine dealers, marina operators and service firms have a dog in this fight. They, like all other retailers, must pay the “interchange fee” to banks every time a customer swipes his debit or credit card to buy and pay for goods or services. The swipe fees, set by Visa and MasterCard, are supposed to reimburse banks for the actual costs of servicing the cards. Retailers maintain the true cost is more like 4 cents.

Looking forward, there are literally billions of dollars at play in this high-stakes battle. But it’s also not the only one. There’s a totally separate action taking place in which U.S. District Court Judge John Gleeson ruled against the retailers last December when he give final court approval to a settlement of a lawsuit involving the refund of $30 billion in credit-card swipe fees overcharged in the past by Visa and MasterCard. Judge Gleeson dismissed the retailer’s objections that the proposed settlement was agreed to by only a handful of retailers and would do nothing to bring swipe fees under control.

You guessed it — the National Retail Federation filed an appeal in January, arguing that the settlement was “an abuse of the class action system” and that small retailers would receive as little as a few hundred dollars with nothing in return. The case is currently pending before the U.S. Circuit Court of Appeals in New York.