Two lobbying associations representing merchants in North Dakota sued the Federal Reserve to win a reduction in the fees they pay to banks each time a consumer swipes a debit card.
The North Dakota Retail Association and the North Dakota Petroleum Marketers Association said in the complaint that the Fed should vacate its rule that caps those fees at 21 cents for cards from the largest U.S. banks. The fees merchants pay to process both credit and debit cards have soared in recent years to more than $100 billion annually.
Debit card fees were capped a decade ago by the so-called Durbin Amendment to the Dodd-Frank overhaul of financial regulations. The Fed was ordered to set rules that capped the fees at a price that was proportional to lenders’ costs.
“For a decade, the board has failed to properly follow Congress’s instructions to ensure that debit card processing fees are reasonable and proportional to the costs of debit card transactions,” according to the complaint. “American consumers and merchants continue to suffer the same harms that prompted Congress to act in the first place. Enough is enough.”
Initially, the central bank said fees would be limited to as much as 12 cents per transaction. The Fed ultimately set the cap at 21 cents, saying it took into account the fixed costs lenders shoulder to process transactions. Banks also can charge another cent for fraud prevention and five basis points for losses.
A representative for the Federal Reserve declined to comment on the lawsuit.
In the decade since the regulation was passed, the Fed has found that banks’ costs for processing debit card payments have dropped. The cost was 3.6 cents per swipe in 2017.
“As time has gone on and the cost of authorizing, clearing and settlement have regularly gone down per the Fed’s own findings, small businesses in places like North Dakota and all over the country are really being harmed,” said Stephanie Martz, general counsel for the National Retail Federation. Martz is co-counsel in Thursday’s litigation, though the NRF is not a party in the case.
It’s not the first time retailers have sought to trim the fees. The National Retail Federation sued the central bank when it originally issued the cap. While the association won its case in front of a trial judge, the decision was overturned on appeal and the Supreme Court declined to take up the case.
Part of the pinch for retailers is the fact that card use has surged during the pandemic as consumers avoided cash and did more shopping online.
Visa Inc. on Tuesday said spending on debit cards in the U.S. surged 34% in the first three months of the year compared with the same period in 2020. For the month of April alone, such spending surged 51% compared to pre-pandemic levels, aided by the distribution of stimulus payments to millions of Americans.
“Especially during the pandemic, we’ve seen even more debit cards,” Mike Rud, president of the two North Dakota associations, said in an interview. “That all starts to add up.”
