Retail businesses could find relief – and banks a major loss of revenue – if the interchange fees for debit cards are reduced. A federal judge ruled earlier this month that the Federal Reserve did not meet its obligation to reduce those fees. In response, the Fed appealed the court’s ruling on Aug. 21.
Congress had moved to limit the fees, known as interchange fees, which banks and other institutions can collect for debit card transactions. The Federal Reserve was given responsibility for setting a cap on the fees, but a Washington, D.C., district court judge ruled that the fee cap was too high to satisfy Congress’s intentions.
A 2011 fee cap mandated by the 2010 Dodd-Frank financial reform law had already reduced debit fees by more than half. The current cap is about $0.21 per transaction.
The Fed may be forced to lower the debit card fees further if the ruling by U.S. District Court Judge Richard Leon stands. At a hearing earlier this month, Leon said he would delay action and gave the Fed a week to determine whether it could write an interim rule that would reduce the current cap temporarily. He also suggested at the hearing that financial institutions might have to reimburse merchants for fees that should not have been collected.
But the Fed appealed the ruling, and requested that fees stand as they are until the matter is settled in court.
Debate continues about how the changes might benefit consumers. Business owners have said they would pass savings on to customers, and some merchants such as gas stations have already been offering discounts to customers who pay with cash rather than cards. Banks have argued that the changes would only improve merchants’ bottom lines, and hurt their own business.
