Two retail associations sued the Federal Reserve Board of Governors on Thursday over what they claim is a failure by the central bank to properly enforce a federal law that caps the fees that can be charged on debit transactions.
The North Dakota Retail Association and the North Dakota Petroleum Marketers Association filed the lawsuit in the U.S. District Court in Bismarck, saying 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."
Retailer trade groups have been at loggerheads with the major card companies Visa and Mastercard for years over the interchange, or "swipe," fees they charge on credit and debit card transactions. They backed Sen. Dick Durbin, D-IL, when he successfully pushed through an amendment to the 2010 Dodd-Frank Act that capped debit fees for card-issuing banks with more than $10 billion in assets. That law required the Fed to determine costs that are the basis for devising a fee that's "reasonable and proportional" to the issuer's cost, but those provisions aren't being enforced, the plaintiffs argued.
Under the legislation, the Fed is required to perform a biennial review to assess card issuer costs. It has performed the reviews, but hasn't changed the cost factor since setting it in 2011. The results of a new review are due this year. A spokeswoman for the Fed declined to comment.
"North Dakota merchants are willing to pay a reasonable fee for a service, but they're tired of seeing Wall Street banks stick their hands into the pockets of local businesses," Mike Rud, president of the joint associations, said in a press release distributed by the National Retail Federation (NRF). "These fees are far higher than they need to be and take too much money out of the local economy."
Visa and Mastercard debit card processing fees were $19.7 billion in 2019, about equal to fees before the Durbin amendment was passed, the NRF estimates, citing data from the Nilson Report.
The NRF isn't a party to the lawsuit, but its general counsel, Stephanie Martz, is a co-counsel on the case. The Fed has "wrongly applied federal law" and "merchants have paid billions of dollars more than intended by Congress while banks' costs have fallen," she said in the NRF release. "Retailers are paying twice what they should and these (debit) fees ultimately drive up prices paid by the public. Banks should not be handed a growing windfall at the expense of Main Street stores and consumers."
The cap was initially set at 21 cents plus 1 cent for fraud prevention and 0.05% for fraud loss recovery.
"In this broken market, networks have no incentive to compete with each other to offer lower interchange fees to merchants," the lawsuit alleged.
The two sides locked horns again last month when the credit card networks planned to increase the fees they charge on credit transactions. They had postponed an increase last year due to the pandemic but were planning to impose it this month until pushback from the retail industry and public comments from Durbin criticizing the plan apparently led them to reverse course. The retail groups have said they continue to also be focused on making sure the debit fee cap law is enforced.