The first-ever cap on debit card swipe fees has been struck down by U.S. District Court Judge Richard Leon. The cap had been an attempt to limit the amount that banks charge retailers each time a debit card is used for a transaction.
In his ruling, Leon said the Federal Reserve, which had implemented the rule, did not have the authority to include certain non-transaction related costs when it created the 24 cent per transaction limit.
Neither retailers nor finanancial institutions were happy with the swipe fee cap, but for different reasons. Merchants believed it was too high, and had wanted a limit of closer to 12 cents when the Federal Reserve initially discussed the rule in October 2011. Banks, on the other hand, said they'd prefer to go back to a free-market structure that allows banks and merchants to determine an appropriate fee.
A group of national retailers had brought the suit against the cap, and are hoping that, with the judge's instruction, a new, lower cap might be implemented.
Prior to the the two year-old law, retailers and banks negotiated swipe fees individually, which allowed many of the largest merchants to receive rates substantially lower than small retailers. The national average per transaction fee before 2011 was about 44 cents.
The athority for the Federal Reserve to have some form of oversight on swipe fee charges comes from the financial reforms in 2010, following the financial sector crisis. However, banks argued hard against the cap.
"This new ruling will create even more chaos for consumers and small banks," said Richard Hunt, president and CEO of the Consumer Bankers Association. "Congress ought to save families from this uncertainty by repealing this government mandated price-fixing. We certainly hope retailers return to their free-market principles as they did when opposing the proposed government ban on big gulp sodas in New York."