Retailers sue over ‘swipe’ fee

The National Retail Federation is suing the Federal Reserve over claims that the 21-cent cap it imposed on debit card “swipe fees” for large banks isn’t low enough.The debate over what is a reasonable and proportional amount for retailers to pay banks when consumers swipe their debit cards is one that has waged for years.Every time a consumer swipes his or her debit card at a store, that retailer pays a percentage of the total transaction to the bank issuing the debit card. These so-called “swipe fees” used to average 44 cents. But effective Oct. 1, these fees were capped at 21 cents for banks with more than $10 billion in assets.But the cap didn’t go far enough, retailers said, since the original bill — introduced by U.S. Sen. Richard Durbin, D-Ill. — had proposed a cap of 12 cents.”We felt that we won the battle but lost the war,” said Nancy Kyle, president of the Retail Merchants Association of New Hampshire, told NHBR Nov. 16. “Yes, we did get change, but it wasn’t to the level we wanted. I think that’s because the banks are extremely powerful.”The lawsuit, filed in U.S. District Court in Washington, alleged that the Fed failed to follow the key requirements of the Durbin Amendment, which were to set debit interchange fees at a “reasonable” and “proportional” level to what it actually costs banks to process the transactions.The suit claims that the Fed determined last December that it cost banks 4 cents on average to process a debit card transaction, but that lobbying by the banks drove the final cap to five times that amount.”Rather than following the law, it’s almost as if the banks and the Fed were working hand-in-glove to block the genuine competition and common-sense price reductions Congress directed,” said Mallory Duncan, general counsel for the National Retail Federation, which filed the lawsuit with the Food Marketing Institute, the National Association of Convenience Stores and two retailers.Big banks have already fought back against the cap, saying that the lost revenue will have to be passed on in the form of fees or reduced services to consumers. Most notably, there was the $5 monthly fee Bank of America sought to impose then later rescinded after strong consumer backlash.Even though smaller banks and credit unions in New Hampshire are exempt from the cap, they will still be negatively affected by it, since it will create a two-tiered system in which larger banks are offering lower prices, said Christiana Thornton, vice president of government relations at the New Hampshire Bankers Association.Thornton said the proposed 12-cent cap was “obviously very concerning to us,” but that even at 21 cents, she’s hearing from members that it’s still not enough to cover the cost of operating the debit card payment system.”The interchange fees are in existence because they support the debit card system and the infrastructure for the debit card system, which operates 24/7, 365 days a year,” said Thornton. “So really, those fees support the system, they cover the fraud losses, because the banks take on the fraud — when you use your debit card, swipe it at a retailer, any loss is covered by the financial institution.”In an April interview with NHBR, when the legislation was still under review, St. Mary’s Bank President Ron Covey cited as an example a security breach at a retailer that he said compromised member’s cards and cost the credit union $30,000.The two sides are also at odds on how the swipe fee cap will affect consumers.Kyle said retailers would pass along to consumers some of their savings, which one national payments processor recently estimated at about $20.26 for every $10,000 processed in transactions in New Hampshire.But, said Thornton, whether consumers will actually see any of those savings is not guaranteed.”I think that that’s a big question,” said Thornton. “I don’t think we’ve seen any proof of that yet.”Even though the retailers won this round, this is an issue between two powerful industries that seems destined to wage on.U.S. Reps. Jason Chaffetz, R-Utah, and Bill Owens, D-N.Y., have announced that they will file a House bill to repeal the Durbin Amendment, which Chaffetz called “an affront to consumers and the banking industry.” — KATHLEEN CALLAHAN/NEW HAMPSHIRE