Industry News | March 12, 2012

NRA Joins Suit Against Federal Reserve

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The National Restaurant Association has joined a lawsuit challenging the Federal Reserve’s final rule on debit card swipe fees, arguing that the Fed did not follow Congressional intent to issue regulations that would ensure debit card swipe fees for merchants are 'reasonable and proportional' to the cost of processing debit-card transactions.

The suit is intended to lower the rates by improving the Fed’s rule – not by stopping its implementation.

As a result of the Federal Reserve’s favorable ruling to the big banks and card companies, Visa and MasterCard announced they would raise swipe fees to the Fed’s cap on small-ticket transactions ($15 or less). This move hurts small businesses with heavy small-ticket volume, such as the nation’s quick service restaurants.

While the Federal Reserve’s rule significantly brought down debit swipe fees for many merchants, some small businesses will pay higher fees on smaller ticket transactions – evidence that the Fed provided card networks like Visa and MasterCard too much latitude to increase rates well above a reasonable and proportional level,” says Scott DeFife, Executive Vice President of Policy and Government Affairs for the National Restaurant Association.

Allowing higher fees on small-ticket bills was not the intent of Congress, and the Federal Reserve must reconcile this failure to comply with the law as intended.”

After years of complaints from the National Restaurant Association and other merchant groups about uncontrollable and rising interchange fees for their members, Congress passed reforms under what is known as the Durbin Amendment to give the Federal Reserve the power to regulate interchange fees for debit cards.

The Durbin Amendment was included in the Dodd-Frank financial services reform bill Congress passed in 2010. Named for its top champion in Congress, Sen. Dick Durbin (D-Ill.), the amendment charged the Federal Reserve with ensuring that debit-card fees are “reasonable and proportional” to the cost of processing transactions.

In June 2011, the Federal Reserve announced its final rule to cap swipe fees that merchants pay for debit-card transactions at 21 cents per transaction – less than the average 44 cents that merchants previously paid, but a significant increase over the 12-cent swipe-fee cap that the Federal Reserve first proposed in December 2010.

The lawsuit against the Fed also argues that the final rule fails to promote the price competition among card networks that would help reduce network fees. The law intended to establish a competitive market dynamic between networks, such as Visa and MasterCard, to keep costs down.

However, under the Fed’s final rule, there will be no competition on signature debit routing and very limited, if any, competition on PIN transactions.

The National Restaurant Association joins the Food Marketing Institute, the National Association of Convenience Stores, the National Retail Federation, Boscov's Department Store and Miller Oil Company as plaintiffs in the suit.