Merchants Face Uncertainty in Lifting of Debit Card Fees

Even though a federal judge has vacated the Federal Reserve’s cap on debit card swipe fees, the issue remains far from settled. If the cap is ultimately suspended, the merchants who brought the suit could end up facing even higher transaction costs.

In the case, the judge granted summary judgment in a 2021 federal lawsuit filed by Corner Post, a North Dakota truck stop and convenience store. The ruling means the Fed’s proposed cap reduction will not take immediate effect, allowing the agency time to appeal.

Before the Dodd-Frank Act passed in 2010, directing the Federal Reserve to cap swipe fees, retailers paid as much as 44 cents per transaction—making it costly for small businesses to accept debit cards. The fees remained unregulated until the Fed set a cap of 21 cents in 2011 following the law’s passage.

In 2023, the Fed proposed lowering the current debit fee cap even further, to 14.4 cents.

At the time, the National Retail Federation suggested the limit should be closer to 10.5 cents per transaction. These fees are set by Visa, Mastercard, and other card processing networks.

What Is Reasonable?

The specific requirement in Dodd-Frank states that banks must set swipe fees at a reasonable and proportional level. The Fed claims its rule was adopted in full compliance with Dodd-Frank, but Corner Post argued that the swipe fee cap exceeded what could be considered reasonable.

“The merchant is arguing that the Fed did not follow the rules of Dodd-Frank in setting a single price, and that the Fed should establish a more comprehensive pricing approach that addresses variables such as purchase amount and merchant category,” said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research. “In taking this approach, the merchant is anticipating that this will result in even lower debit pricing for convenience stores, but that may not be the case as banks weigh in with their costing input.”

Rolling the Dice

The Federal Reserve now has the opportunity to appeal the ruling. However, given the administration’s broader anti-regulatory stance on many types of financial transactions, the Fed may lack the appetite to reassert its authority on swipe fees.

“Corner Post is rolling the dice that the court will force the Fed to establish lower fees for convenience stores, but if they eliminate the cap completely, the merchant will end up paying more,” said Apgar. “This is dead center in the ‘be careful what you wish for’ category.”