The judges who ruled today on debit-card swipe fees had a message for the U.S. senator whose legislation spurred a massive battle between Wall Street and the retail industry: Thanks for nothing.
In an unusual bit of pique, a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit called Senator Richard Durbin’s measure “poorly drafted” and subject to little debate when it was passed in 2010. The opinion, written by Judge David Tatel, reversed a lower court ruling and upheld the Federal Reserve Board’s regulation implementing the fee limit.
“We think it worth emphasizing that Congress put the Board, the district court and us in a real bind,” Tatel wrote. “Perhaps unsurprising given that the Durbin Amendment was crafted in conference committee at the eleventh hour, its language is confusing and its structure convoluted.”
Durbin, an Illinois Democrat, fired back a few hours after the ruling in a statement that lambasted the opinion as “a giveaway to the nation’s most powerful banks and a blow to consumers and small businesses across America.”
The panel “astonishingly claimed that the swipe fee amendment was crafted in secret and at the last minute,” the senator said. “If the court had taken the time to carefully read the law and its history they would have known the amendment was debated and approved on the Senate floor with a strong bipartisan majority months before enactment.”
Retailers had long set their sights on cutting the costs they incur for taking plastic. Unlike with checks, banks charge fees, known as interchange, to process debit and credit card payments.
Before Durbin inserted the cap in the 2010 Dodd-Frank Act, debit fees averaged 44 cents per transaction or about $16 billion a year. The amounts were set by Visa Inc. and MasterCard Inc., which own the payment networks and pass the money to the banks.
The Durbin amendment spurred one of Washington’s largest lobbying battles, as retailers and the financial industry grappled over who would get to pocket the $16 billion.
On one side were Wal-Mart Stores Inc., Target Corp. and Home Depot Inc. aided by scores of small retailers. On the other were financial firms led by JPMorgan Chase & Co. and Bank of America (BAC:US) Corp., weakened by the furor over their bailouts during the 2008 financial crisis. Together, the banks and merchants deployed more than 500 lobbyists and spent about $30 million, people familiar with the campaign have said.
Like the appeals court, the Federal Reserve was not happy to be brought into the middle of what its leaders considered a business dispute, people familiar with the matter have said. Several Fed governors also considered the Durbin amendment vague and badly drafted, the people said.
In 2011 the Fed approved its swipe fee rule, allowing a cap of 21 cents, plus some additional payment to compensate for fraud losses. A group of merchants then sued to overturn the rule, arguing that the limit should be much lower and that the central bank didn’t properly follow the law when it calculated what costs should be taken into account.
A lower court last July agreed with the retailers. The Fed appealed.
In today’s opinion, Tatel and Senior Judges Harry Edwards and Stephen Williams reversed that decision and said the Fed’s interpretation of the law was reasonable.
As for the case the retailers tried to make to the court, the decision said, “far from summiting the steep hill, the merchants have barely left basecamp.”
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