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 filed Thursday that the Fed should vacate its rule that caps those fees at 21 cents for cards from the largest U.S. banks, saying the cap was set too high in the first place.
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.
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 5 basis points for losses.
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 national federation is not a party in the case.
A representative for the Federal Reserve declined to comment on the lawsuit.
It’s not the first time retailers have sought to trim the fees. The national 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.