Every mom-and-pop shop, Starbucks and 7-Eleven won a potential victory Wednesday when a federal judge tossed out a Federal Reserve rule on fees banks can charge merchants when they swipe customers' debit cards, saying the Fed didn't do enough to limit the levies.
The decision likely will force the Fed to slash those fees, further crimping a once-lucrative business for banks and card giants like Visa Inc. and MasterCard Inc
The 2010 Dodd-Frank financial law required the Fed to ensure these "interchange fees" reflect the actual cost of processing debit-card transactions. The Fed initially proposed capping fees at 12 cents a transaction, but ultimately set the cap at 21 cents—plus the potential of a few cents more to cover costs such as fraud. Before the rule went into effect, banks charged an average of 44 cents a transaction.
Several leading retailers of small-ticket items, including 7-Eleven Inc., Burger King Corp. and Starbucks Corp., had urged the judge to toss the Fed rule, filing a court brief saying debit costs for small transactions had soared since it went into effect. Card companies used to charge merchants lower fees for small transactions, but that went away after the rule.
The financial industry criticized the judge's decision, saying caps on debit fees have forced banks to raise costs for checking accounts and other services, and haven't prompted merchants to lower their prices
The brief the retailers filed with the court cited the experience of Donald Pace, who owns six Auntie Anne's pretzel locations. He said he has been paying approximately $1,000 a month in additional debit-interchange fees since the rule went into effect.
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