Retailers rejected by Supreme Court on debit-card fees

Retailers will have to live with a U.S. regulation they say lets banks overcharge merchants by $3 billion a year.

The U.S. Supreme Court, without comment, left intact a Federal Reserve rule governing how much banks can collect for debit-card transactions. The retail industry argued the regulation didn’t go far enough in capping swipe fees at 21 cents per transaction.

The use of debit cards has soared in the last decade. Consumers used them for 47 billion transactions in 2012, according to federal statistics. Wal-Mart Stores Inc. alone says it handled more than 3 billion debit-card transactions at its stores in the last fiscal year.

“The cumulative financial impact of the rule is massive,” the appeal argued. The retail group was led by NACS, formerly known as the National Association of Convenience Stores.

The rebuff is a victory for Bank of America Corp. and Wells Fargo & Co., the top U.S. debit-card issuers, preserving a multibillion-dollar revenue stream for the industry. The largest banks earn as much as 5 percent of their revenue from card fees. The rejection also benefits the leading debit-processing networks, Visa Inc. and MasterCard Inc.

The Fed rule is a product of the 2010 Dodd-Frank financial- reform law, which told the board to set limits on what are known as interchange fees. Those fees averaged 44 cents in 2009, and the Fed originally proposed capping them at 12 cents.

Lobbying campaign

After a lobbying campaign by banks and payment networks, the board decided to set the limit instead at 21 cents, plus an additional sum to account for fraud losses. The final rule is costing banks an estimated $8 billion annually.

The retail industry argued unsuccessfully that the Fed is improperly letting banks recoup the fixed costs for their debit-card programs, including the money spent on network hardware, software and labor. The merchants point to a provision in Dodd-Frank that says banks can’t collect costs “not specific to a particular electronic debit transaction.”

“Congress prohibited banks from passing their fixed costs on to merchants,” the group said. The retailers sought to overturn a federal appeals court decision upholding the rule.

The Obama administration defended the rule, saying the board reasonably concluded that any line between variable and fixed costs would be artificial and unworkable.

“The challenged rule significantly reduces interchange transaction fees by capping them at approximately half of their previous average value,” U.S. Solicitor General Donald Verrilli argued. “If that is higher than Congress would like, then Congress can amend the Act to ensure its desired result.”

Retailers say the rule also let banks collect higher fees than they had previously on transactions of less than $15.