WASHINGTON--The U.S. Supreme Court on Tuesday struck a blow
against retail-industry efforts to lower debit-card fees,
announcing it wouldn't consider a challenge to Federal Reserve
regulations on the fees banks can charge merchants for processing
debit transactions.
The high court's action, which came in a brief written order,
removes lingering uncertainty for the banking industry by ending a
three-year federal court battle over fees associated with tens of
billions of debit-card transactions annually.
The 2010 Dodd-Frank financial law required the Fed to ensure
that the card fees, called interchange fees, were reasonable and
proportional to the actual cost of processing debit transactions.
The Fed initially proposed limiting the fees to 12 cents a
transaction--but later settled on a cap of 21 cents, with room for
a few cents extra to cover certain costs like fraud.
Merchants pay the fees each time a customer swipes a debit card.
Visa Inc. and MasterCard Inc., which dominate the debit market, set
the fees that are collected by banks.
The Fed's final cap was lower than the average fees of 44 cents
that banks charged before the rule, but the regulation didn't slash
the fees as much as merchants wished. And for small-dollar
transactions, the regulation allowed banks to impose higher fees
than the customary rate before the new rule, retailers said.
The Fed's rule "will unlawfully permit banks to inflate by
billions of dollars each year the interchange fees they charge
American merchants and, in turn, American consumers," the
challengers said in their appeal to the Supreme Court. Industry
groups representing retailers, restaurants, supermarkets and
convenience stores were among the parties who asked the Supreme
Court to intervene.
Companies including Wal-Mart Stores Inc. and Starbucks Corp.
filed amicus briefs that supported the challenge, as did Sen.
Richard Durbin, (D., Ill.), author of the Dodd-Frank provision
limiting the fees.
The Fed, represented by U.S. Solicitor General Donald Verrilli,
said in a high-court filing that its actions were reasonable and
argued the justices didn't need to get involved because the legal
issues in the case had no implications beyond the debit-fee rules.
It also said that even under the retailers' interpretation of
Dodd-Frank, there was no guarantee that the Fed would cap debit
fees as low as the merchants wanted.
The legal battle had produced ups and downs for both sides as
they fought over what types of bank costs could be considered in
setting debit fees. A federal trial judge sided with the merchants
in 2013, saying the Fed wrongly allowed the fees to encompass card
issuers' fixed costs like networking equipment and computer
software that had nothing to do with the incremental costs of
processing individual debit transactions.
The U.S. Court of Appeals for the District of Columbia Circuit
reversed that ruling last March, saying it was reasonable to allow
such fixed costs in the fee calculations.
The Supreme Court left the D.C. Circuit's ruling in place
without comment.
Write to Brent Kendall at brent.kendall@wsj.com
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