Last year, the eyes of the retail industry were on Congress as a battle between retailers, bankers and credit card companies raged. The biggest point of contention is that during a credit card transaction, card providers charge retailers a processing fee which can add up overtime. This has caused a number of different retailers to either limit when cards could be used or stop accepting them altogether in order to avoid these fees.
Last July, U.S. District Court Judge Richard Leon ruled that the central cap was set too high under pressure from the banking lobby. He even scolded the Federal Reserve in his ruling about the slow reaction to inflated swipe fees.
However, according to the Washington Post, last week the U.S. appeals court struck down that decision and ordered the Federal Reserve to rewrite its rules for governing fees that banks collect. The new cap will be 21 cents per transaction, which is half of the previous 44-cent charge per swipe.
This could wind up being a blow for retailers and customers alike as the higher price for every swipe could result in higher prices for consumers.
"The Fed ignored congressional intent and worked to shield debit card companies and big banks. A self-described victory for the banks usually results in higher costs for consumers," said Mallory Duncan, general counsel for the National Retail Federation.
Richard Hunt, president and chief executive of the Consumer Bankers Association, a trade group, said that "reasonable minds have prevailed" in this matter. He added that any changes to the currently allow interchange rates to only make this worse for consumers, and their protection should be the first priority.
This is all born out of interpretation of the slightly convoluted 2010 Dodd-Frank financial law. It dictated a revised way for banks to charge merchants for accepting debit cards. The appellate court found that the Fed acted reasonably with their initial fees and did its best to get through the "ambiguity" of the amendment.
The law was authored by Democratic Senator of Illinois Richard Durbin, and he is speaking out against the way it is being used. He said that the appellate court ruling is a giveaway to the nation's most powerful banks and is a problem for customers and small businesses.
He added that this ruling allows "Visa and MasterCard to dramatically increase debit swipe fees on many small businesses, contrary to Congress's clear language and intent."
The ruling also hurts retailers in a different way, by limiting choice when it comes to competition in the payment systems. The law says merchants need to have multiple networks to conduct debit card transactions, the Fed, however, requires that each debit be processed on two independent networks for verification, PIN and signature.
Merchants want more flexibility and choice. Leon permitted at least two signature options in his ruling from July, but the reversal of the ruling ends that, allows banks to justify delaying the replacement of magnetic-strip cards with chip cards.
This issue is far from over, and the debate over point of sale credit card processing and swipe fees is going to continue to rage as retailers are sure to look for a way to reverse this decision. Because of this, merchants need to keep an ear to the ground to make sure they know what the latest news is.