Appeals court sides with Fed's cap on debit card swipe fees

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A coalition of retail groups are in dismay over a decision by a federal appeals court that upheld the US Federal Reserve's cap on the amount of fees banks could charge on businesses for handling debit card transactions. The current cap is an average of $0.24 per transaction. The Houston Chronicle said that retail merchants had deemed the cap too high.

The ruling, which was issued by the US Appeals Court for the District of Columbia on Friday, reversed a lower court decision which was in favor of the retail groups. The retail groups reportedly sued the Fed for setting the cap, which is actually a US Congress mandate stemming from a financial regulatory overhaul in 2010. Before the overhaul, the transaction was initially set at an average of $0.44 per debit card swipe. The Chronicle noted that the Fed proposed a $0.12 transaction fee. When the transaction fee doubled when it was passed and implemented, the retail groups claimed that the federal agency had buckled under the pressure from bank lobbyists. The plaintiffs have argued that the Fed factored banks' expenses into the cap that the law had not allowed, which was a clear deviation to the intention of the 2010 overhaul.

The Chronicle said banks had been lobbying to increase the original proposed cap of the Fed and explained that the federal agency overlooked the cost of handling the debit card transactions, maintenance and fraud prevention. In late 2011, there were attempts on banks to recoup the said costs by charging their debit card customers monthly fees. Public uproar over the monthly fees led for the said banks to drop the charges, The Chronicle said.

In a statement, plaintiff the National Retail Federation said following the Appeals decision that it will be reviewing the court ruling and will mull over its decision on whether to appeal it. Senior vice president and general counsel Mallory Duncan said on behalf of the group, "NRF is disappointed and remains confident that the Federal Reserve erred when it set the swipe-fee cap far higher than intended by Congress. The Fed ignored congressional intent, and worked to shield debit-card companies and big banks."

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