A U.S. District Court had ruled last July that the Fed had been too lenient and set the cap for such fees too high under pressure from the banking industry, and was clearly misinterpreting the 2010 Dodd-Frank law. Dodd-Frank required that such fees, called interchangeable fees, should reflect the actual cost of these transactions.
The Fed had initially agreed to cap this fee at 12 cents but later changed it to 21 cents, plus the potential of a few cents more to cover costs such as fraud, which was considerably lower than the 44 cents banks were charging before the law came into effect.
The court said that the Fed's interpretation of the law was reasonable, despite a lot of ambiguity surrounding that part of the law, and that the issue puts the Fed and courts in a bind as the amendment was poorly written.
"Its language is confusing and its structure convoluted," the court said of Dodd-Frank's Durbin Amendment.
The banking industry has applauded the ruling saying that they need the fees to offset the additional costs of checking accounts and other services. After proposing the 12 cent fee, the Fed went on to include the cost of fraud-prevention technology and equipment pushing up the fees.
“Reasonable minds have prevailed,” said Richard Hunt, president and chief executive of the Consumer Bankers Association, a trade group. “Any further changes to the currently allowed interchange rates would only pile on the negative consequences for consumers. Consumers must come first in this process, not the bottom line of retailers.”
Merchants could ask the appeals court to review the decision or they could petition the Supreme Court to review the Fed's rules.
"It's disappointing and we disagree with the court's rationale," said Doug Kantor, an attorney with Steptoe & Johnson LLP who represents the National Association of Convenience Stores and other plaintiffs in the case. "We are taking a look at what next steps we might be able to take, whether in an appeal process or otherwise."
[Wall Street Journal]