Following the Fed’s recent announcement that it has no plans to adjust the level of the interchange cap, Senate Majority Whip Richard Durbin, D-Ill was quick to respond.
“The (Durbin/Swipe Fee) amendment was carefully crafted and its purpose was clearly expressed,” said Durbin. “Unfortunately, the Board’s final rulemaking failed to sufficiently follow the text and purpose of the law.”
Durbin made his comments via a friend-of-the-court brief that was filed one day after the Fed issued its report noting high-volume banks, which make up the largest share of debit card issuers, had an average cost of 4.4 cents for processing debit card transactions last year—far below the 21-cent interchange cap—and that the average cost was only 14.9 cents even for mid-level banks. The report further pointed out that 99% of debit card transactions are processed by banks whose costs fall below the 21-cent cap. That data, however failed to sway the Fed to adjust the rate. Instead, the Fed announced it has no plans to adjust the swipe fee cap. The Fed’s report noted debit swipe fees totaled $16.3 billion last year, which is down from about $20 billion a year before the cap. Debit swipe fees averaged about 45 cents per transaction before the cap was established. But the retail industry believes the cap should be lower to reflect the actual costs of a transaction.
“Because interchange fees are ultimately borne by consumers in the form of higher retail prices, consumers have suffered as a result,” Durbin said.
In his comments, Durbin argued that the Circuit Court “essentially gave the Board a blank check” to include costs that Congress specifically said could not be used to boost debit swipe fees. Under the Durbin Amendment, the Fed was only allowed to consider the costs of authorizing, clearing and settling each transaction, the National Retail Federation (NRF) reported. The Fed initially calculated those costs at an average of four cents per transaction and proposed a cap of up to 12 cents.
Durbin said the 21-cent level was set after the banking industry launched an aggressive lobbying campaign to weaken the draft rule. “Congress neither instructed nor empowered the Board to impose its own policy judgments and engage in a line-drawing exercise between merchants’ desire for low fees and banks’ desire for high fees,” Durbin said. “Congress tasked the Board to follow the law Congress enacted, not to circumvent it at the request of the banking industry.”
Durbin’s friend-of-the-court brief was filed last week in an NRF lawsuit that claims the 21-cent cap set by the Fed in 2011 goes beyond the “reasonable and proportional” level mandated by Congress under the Durbin Amendment provisions of the Dodd-Frank Consumer Protection and Wall Street Reform Act of 2010, NRF reported.
A U.S. District Court judge agreed in 2013 that the cap was too high, but the U.S. Circuit Court of Appeals overturned the ruling this spring, citing “ambiguity” in the 2010 law. NRF this summer asked the Supreme Court to hear the case, and is currently awaiting a decision.