CEO Perspective – The Debit Interchange Court Ruling

Jason Oxman
August 1, 2013 – On July 31, the U.S. District Court for the District of Columbia issued a decision striking down the Federal Reserve’s price caps on debit interchange fees. The caps, implemented as a result of the Dodd-Frank Act in 2011, imposed a 21-cent cap on debit-card transaction fees. As a result, the Fed now has to appeal the District Court’s decision or go back to the drawing board to address the once-settled issue of debit interchange caps.

In a 58-page opinion, U.S. District Judge Richard Leon ruled that the Federal Reserve did not appropriately fulfill Congress’s intent of the Durbin Amendment, a provision of the so-called Dodd-Frank legislation. “The board has clearly disregarded Congress’s statutory intent by inappropriately inflating all debit card transaction fees by billions of dollars and failing to provide merchants with multiple unaffiliated networks for each debit card transaction,” Leon wrote in his ruling.

It is vital that business, consumer groups, government and regulators fully understand the significant impact this decision will have on consumers, banks and all institutions that provide financial services. The retailers behind the lawsuit have made a number of specific claims about the potential impact of reducing interchange fees. They claim to be acting in consumers’ best interests but a closer look at these arguments prove them to be fundamentally flawed.

Since the implementation of Dodd-Frank in 2011, U.S. consumers have seen available banking services decline. Unable to cover the costs of consumer-friendly debit programs, banks eliminated debit card reward programs and free checking, with only 39 percent of banks now offering checking without minimum balance requirements or annual fees. Meanwhile, consumers have not seen extra savings at the register. While merchants enjoyed an estimated $8 billion in savings from the legislation, those savings were not passed on through lower prices charged to consumers.

[spacer height=3] [divide] [spacer height=3] Jason Oxman is the CEO of the Electronic Transactions Association.