[January 18, 2014]WASHINGTON (Reuters) — U.S. appeals
judges appeared on Friday to side with the Federal Reserve over a
group of retailers who are disputing the level of fees set by the
Fed on the use of debit cards.
Businesses pay "swipe fees" to banks when customers use debit cards
to purchase goods or services to cover the costs of offering the
cards. At the instruction of Congress, the Fed in 2011 limited those
fees, and settled on 21 cents per transaction.
A U.S. district court agreed with the merchants that the agency set
the cap higher than lawmakers intended and threw out the Fed's fee
limits last year. The Fed appealed the ruling.
The three-member appeals panel on Friday pushed back against the
retailers' argument that the Fed's fee cap could only incorporate
certain costs to banks that were identified by Congress.
"You're climbing a really steep hill...none of us buy that," Judge
Harry Edwards said to Shannen Coffin, an attorney with Steptoe &
Johnson who was representing the retailers. The appeals panel did
appear open to discussing whether each of the particular costs
included by the Fed was appropriate.
At issue is a section of the 2010 Dodd-Frank law that directs the
Fed to limit swipe fees, also known as interchange fees. Visa <V.N>,
MasterCard <MA.N> and other card networks set the levels, which
averaged about 44 cents per transaction before Congress intervened.
Lawmakers hoped lower fees would trickle down to benefit consumers
in the form of lower prices. They wanted the limits to account for
reasonable costs of debit cards, but to exclude any costs that were
not tied to specific debit transactions.
The Fed decided labor, software, network processing fees and
allowances for fraud losses were relevant costs under the wording of
Dodd-Frank and, in 2011, set the limit at 21 cents.
The National Retail Federation, National Restaurant Association and
other groups sued in November 2011, arguing that those costs went
beyond what was allowed under Dodd-Frank.
Judge Richard Leon of the U.S. District Court for the District of
Columbia in July 2013 ordered the Fed to lower the fee cap. He said
the Fed was "inappropriately inflating all debit card transaction
fees by billions of dollars.
He allowed the Fed's current limit to remain in place while the
agency appealed his ruling. The sides appeared before the U.S. Court
of Appeals for the District of Columbia Circuit on Friday.
The lawsuit also involves a Fed rule related to networks that
process debit card transactions. Retailers say the Fed did not do
enough to promote competition among those networks, as required by
But most of the hourlong session on Friday focused on the swipe
fees. The appeals panel asked Katherine Wheatley, the Fed's
associate general counsel, how the agency determined which costs it
could consider. For instance, Judge David Tatel pointed out, the Fed
did not include corporate overhead.
"Help me understand how the board distinguished between those it
included and those it didn't," Tatel said.
Wheatley said the agency included only costs it could tie directly
to debit card transactions.
(Reporting by Emily Stephenson; editing
by Stephen Powell)