A federal appeals court has agreed with a Federal Reserve rule that placed a 21-cent cap on swipe fees that banks charge retail stores for each debit card transaction.  After initially proposing to limit fees to 12 cents, the central bank issued a final rule in 2011 that capped fees at 21 cents. Soon after, the National Retail Federation along with other retail groups, filed a lawsuit against the Federal Reserve, saying that the fees should be lower. In 2013, Judge Richard Leon ruled in NRF’s favor and ordered the Fed to recalculate the cap at a lower level, but the Fed appealed. The U.S. Court of Appeals in Washington overturned Leon’s ruling. Although the ruling is a win for the Federal Reserve and the banks, nothing is expected to change for consumers.

Retailers are disappointed in Swipe Fee Ruling.  The National Retail Federation expressed disappointment in the court’s decision to keep the Federal Reserve’s cap on debit card swipe fees at 21 cents rather than reducing it to a lower level. The NRF believes the current cap is far higher than intended by Congress.

Under the Durbin Amendment provisions of the 2010 Dodd-Frank Consumer Protection and Wall Street Reform Act, the Federal Reserve was required to adopt regulations that would result in debit card swipe fees that were “reasonable” and “proportional” to the actual cost of processing a transaction. The Fed calculated the actual average cost at 4 cents per transaction and initially proposed a cap no higher than 12 cents, but eventually settled on 21 cents after heavy lobbying from the financial services industry.  NRF claims the cap cutting swipe fees in half has saved many retailers and consumers billions of dollars but the fees, especially for small ticket transactions, are still far too high. They are reviewing the decision and will determine whether to appeal.  Prior to the financial crises in the U.S. the average fee per transaction averaged about 45 cents.

The U.S. Court of Appeals for the District of Columbia Circuit struck down a lower court ruling that sided with retailers saying the Federal Reserve should lower fees even more.

Although it was not clear that consumers got any of the savings, one industry-sponsored survey found that 67% of retailers kept prices the same or raised them instead of passing on savings to customers.  A 2013 report by the Merchants Payments Coalition showed that swipe fee caps saved consumers $5.8 billion in 2012 through lower costs for goods and services.

Bank of America, J.P. Morgan Chase and Wells Fargo banks took big hits to revenue after trying to charge new debit card fees, but public outrage caused them to reverse course.  The ruling also impacts Visa and Mastercard, which collect swipe fees for the banks and keep a portion for the use of their payment networks. Following the announcement of the Court’s decision shares of Visa rose 4% in trading but MasterCard was down 9%.

Retail is the nation’s largest private sector employer, supporting one in four U.S. jobs – 42 million working Americans. Contributing $2.5 trillion to annual GDP, retail is a daily barometer for the nation’s economy.  NRF is the world’s largest retail trade association, representing discount and department stores, home goods and specialty stores, Main Street merchants, grocers, wholesalers, chain restaurants and Internet retailers from the United States and more than 45 countries.

Sources: National Retail Federation; CNN Money