NRF Welcomes Supreme Court Ruling Allowing Debit Card Swipe Fee Challenge to Move Forward

"The Supreme Court has made the right decision by allowing this lawsuit to be decided on its merits.”

NRF CAO and General Counsel Stephanie Martz

WASHINGTON – The National Retail Federation welcomed today’s U.S. Supreme Court ruling allowing a lawsuit that says the Federal Reserve set its 2011 cap on debit card “swipe” fees too high to move forward despite arguments that the suit was filed too late.

“There are multiple reasons why the statute of limitations has not expired in this case,” NRF Chief Administrative Officer and General Counsel Stephanie Martz said. “The bottom line is that a small business harmed by a faulty regulation should not be denied its day in court based on a technicality, especially one that has been in dispute. The Federal Reserve set the cap far higher than intended by Congress and merchants like Corner Post have paid millions of dollars too much as a result, in turn driving up prices for their customers. That harm is ongoing and hasn’t been changed by the passage of time. The Supreme Court has made the right decision by allowing this lawsuit to be decided on its merits.”

The Supreme Court ruled this morning in favor of a
2021 federal lawsuit filed by the Corner Post, a Watford City, N.D., truck stop and convenience store that was joined by the North Dakota Retail Association and the North Dakota Petroleum Marketers Association. The case challenged a Federal Reserve cap on debit card swipe fees that took effect in 2011, saying it was set higher than intended by Congress. NRF is not a party, but Martz is a co-counsel in the case.

The issue before the Supreme Court was whether the case was blocked by the six-year statute of limitations on challenges to most federal regulations. While the suit was filed 10 years after regulations setting the cap took effect, it argues that the six-year period began again after a 2015 update of the regulations. In addition, the Corner Post was not established until 2018, meaning it was not affected until then, the lawsuit says. Five federal appeals courts ruled against the Corner Post, but the 6th U.S. Circuit Court of Appeals held that the six-year limit does not start to run until a party is aggrieved.

The lawsuit says the Fed set the cap higher than allowed under the Durbin Amendment, a 2010 law directing it to adopt regulations resulting in debit card swipe fees that were “reasonable” and “proportional” to banks’ costs. Congress limited costs the Fed could consider to incremental expenses and the Fed initially proposed a limit of 7-12 cents per transaction. Under pressure from banks, however, it also took fixed costs, fraud losses, transaction monitoring and network processing fees into consideration. The final cap, which applies only to financial institutions with at least $10 billion assets, was set at 21 cents plus 1 cent for fraud prevention and 0.05% for fraud loss recovery.

Since then, the Fed has reviewed banks’ costs every two years as required by the law but has not kept the cap proportional to falling costs. A Fed survey found banks allowable costs averaged 7.7 cents per transaction as of 2009, meaning the cap was originally less than three times the cost. The
latest survey showed the average had dropped to 3.9 cents by 2021, making the cap over five times banks’ costs.

Last October, the Fed finally
proposed lowering the cap to 14.4 cents per transaction and reducing the amount for fraud loss to 0.04% but raising the amount for fraud prevention to 1.3 cents. This May, NRF filed comments saying the base rate should be 10.5 cents to keep it at the original proportion, although tiered rates could be set based on banks’ debit card transaction volume. NRF said the 1 cent for fraud prevention should be eliminated since adoption of EMV chip cards in 2015 shifted fraud costs to merchants, and that the percentage for fraud cost should be based on banks’ net costs after considering fraud borne by merchants.

Before Durbin, banks charged about 45 cents to process a typical debit transaction, and regulation has saved merchants $9.4 billion a year, with studies showing 70% of the savings has been passed on to consumers. Debit and credit card swipe fees are most merchants’ highest cost after labor and drive up prices by over $1,100 a year for the average family. Debit swipe fees totaled $36.3 billion in 2023 and total swipe fees have more than doubled over the past decade to a record $172 billion.

As the leading authority and voice for the retail industry, NRF has led retailers’ fight for fair swipe fees for more than 20 years.

About NRF
The National Retail Federation passionately advocates for the people, brands, policies and ideas that help retail succeed. From its headquarters in Washington, D.C., NRF empowers the industry that powers the economy. Retail is the nation’s largest private-sector employer, contributing $5.3 trillion to annual GDP and supporting more than one in four U.S. jobs — 55 million working Americans. For over a century, NRF has been a voice for every retailer and every retail job, educating, inspiring and communicating the powerful impact retail has on local communities and global economies.