More on federal district court’s debit card ruling

by Brian Wolfman

Yesterday, we told you about federal judge Richard Leon's ruling invalidating the Federal Reserve's rule on debit card swipe fees. As explained in this article by Katerina Sokou, if Judge Leon's decision holds, swipe fees likely will drop substantially, which should benefit consumers in the form of lower retail prices. Lower swipe fees will of course directly benefit the merchants who pay the swipe fees. The banking industry — which lobbied the Fed for the current high-swipe-fee rule — claims that merchants will keep the savings from lower swipe fees and not pass much if any of the savings on to consumers as they compete for those consumers in the marketplace. Hmmm.

Here's an excerpt from Sokou's article:

The judge ruled that the Federal Reserve improperly set the caps too
high after an extensive lobbying campaign by the banking industry. Under
the rule, banks can charge retailers as much as 21 cents a transaction. … The banking industry immediately expressed disappointment
with the decision and urged the Federal Reserve to appeal. The industry
has said that merchants are unlikely to pass on this “windfall” to
consumers and instead will increase their profit margins. … Even though the Fed had initially proposed a cap of about 12 cents, the
final rule was expanded to cover more items, including the cost of
equipment and fraud-prevention technology. That was improper, the court
ruled. …The court decision could result in debit fees being cut by more than
50 percent, Guggenheim Partners said in a note to investors. Fees
probably will revert to the 7 cents to 12 cents per transaction that the
Fed had initially proposed, the note said. Fees will not be
lowered, however, until the Fed adopts new standards. In the decision,
Leon said it should take “months, not years” to develop new rules. But
Guggenheim Partners predicted that the current fees will remain in place
through 2014 or even longer, because the Fed may appeal the ruling.

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