A federal appeals court has ordered the Federal Reserve to rewrite its 15-year-old rule capping how much banks can charge merchants for processing debit-card transactions, Bloomberg Law reported on Monday, October 26.

Source: Bloomberg Law

A three-judge panel of the U.S. Court of Appeals for the Eighth Circuit upheld a ruling issued last year by U.S. District Judge Daniel Traynor in favour of Corner Post, a North Dakota truck stop and convenience store that sued the Fed in 2021 saying the regulated rate was set too high, the Merchants Payments Coalition said in a statement welcoming the decision on October 26. Traynor vacated the rate and told the agency to recalculate it, but placed that move on hold pending the appeal.

Source: Merchants Payments Coalition

Writing for the appeals court, Judge David Straus said the Fed violated the law by factoring fixed costs into a cap that set a flat limit of 21 cents per transaction, American Banker reported. The Durbin Amendment to the 2010 Dodd-Frank Act called for a limit reflecting the incremental costs of each individual swipe, the court said. Among the costs the Fed had included were fixed costs for authorization, clearance and settlement, network processing fees, transaction-monitoring costs for fraud prevention, and fraud losses, Straus wrote, according to American Banker.

Source: American Banker

Why a truck stop brought the case

Corner Post was joined by other retail businesses and industry groups, and Sen. Dick Durbin of Illinois — the author of the Durbin Amendment — filed a supporting brief, American Banker reported. Swipe fees are paid by stores every time a customer uses a debit card, so the cap directly affects truck stops, convenience stores and small shops — including the highway businesses many Punjabi truckers and shop owners in the U.S. run or rely on.

Merchants welcomed the ruling. Doug Kantor of the National Association of Convenience Stores, speaking for the Merchants Payments Coalition, said the decision confirms what merchants have said for more than a decade — that the Fed let the biggest banks charge far more than the law allows — and urged the Fed to promptly replace the rule with one that complies with the law. That is the merchants' position, presented by their coalition.

It was not immediately clear whether the Fed would appeal to the Supreme Court or try to implement a new framework that more closely reflects per-transaction costs, American Banker reported. Bloomberg Law noted the panel also said the Fed never defined what counts as a covered incremental cost when it adopted the fee rule, as the Dodd-Frank Act required.