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Appeals court upholds Fed’s debit card fee limits
A U.S. appeals court upheld the Federal Reserve’s controversial rules for debit card “swipe fees” on Friday, disappointing merchants who had argued the charges were too high. Businesses pay the fees to banks when customers use debit cards to purchase goods or services. The fees reimburse banks for costs involved in offering debit cards. At the instruction of Congress, the Fed in 2011 limited the fees to 21 cents per transaction. A U.S. district court in July 2013 agreed with a group of retailers that lawmakers intended the cap to be lower and overturned the Fed’s rule. The three-member panel of the U.S. Court of Appeals for the District of Columbia Circuit sided with the Fed on Friday, saying the law’s “ambiguity” gave regulators leeway to set a higher fee cap. “Because neither agencies nor courts have authority to disregard the demands of even poorly drafted legislation, we must do … Continue reading
Judge Approves Huge Swipe-Fee Settlement
A federal judge approved the multibillion-dollar settlement of a lawsuit over credit card swipe fees, resolving an eight-year battle between banks and retailers. In a 55-page ruling, U.S. District Judge John Gleeson says the settlement will have a positive effect on competition. He was also sharply critical of the tactics and arguments made by many of the nation’s largest retailers, which tried to torpedo the deal. “The vitriol and poor behavior and feigned hysteria mask complex and difficult issues on which reasonable merchants can and do disagree,” Gleeson writes.
Visa, MasterCard $5.7 Billion Swipe Fee Accord Approved
Visa Inc. (V) and MasterCard Inc. (MA) won approval for a $5.7 billion settlement that ended years of litigation with U.S. merchants over allegations that credit-card swipe fees are improperly fixed. U.S. District Judge John Gleeson said that he was satisfied with the settlement, which was estimated to be the largest-ever U.S. antitrust accord.
Credit card swipe fee settlement gains approval
Visa and MasterCard won a years-long court battle on Friday with the approval of a $5.7 billion settlement over credit card swipe fees.
Retailers Only Sell Half a Loaf in their Analysis of the Costs of Interchange Fees
Open Market published a blog post which points out the flaws of the Robert Shapiro study on the cost of interchange fees. The author writes that the study “ignores half of the equation – the increased costs to bank card users from banks needing to make up a sudden shortfall in revenue as a result of this regulation.” Additionally, the piece highlights the Evans et al. study which finds that some savings to merchants were passed on to the consumer, but those savings were more than wiped out by the increased banking fees and the loss of reward programs.
We Didn’t Regulate Credit Cards, We Regulated People
I described the effects of the Durbin Amendment to the 2010 Dodd-Frank Act in addition to a general overview of why current levels of regulation hurt the economy. The Amendment gave the Federal Reserve the power to limit interchange fees, which they did at around 24c per transaction for “non-exempt” issuers. When the Durbin Amendment was first mooted, based on the Australian experiences, we predicted that none of the savings to merchants would be passed on to consumers and that it would bring an end to credit card rewards programs and free debit cards. Now, thanks to a study by David Evans et al. of the University of Chicago Coase-Sandor Institute, we know that that did happen, and that consumers are worse off to the tune of around $200 per household.
The Not-So-Friendly Sen. Dick Durbin Amendment
Price controls are never a good idea, yet they seem to be a staple of policymakers across the globe. Inevitably, they result in dislocations in the market that frustrate both consumers and producers. If prices are too low, shortages emerge leaving consumers in the cold and producers disinterested in serving that market. High prices create gluts, as unwanted goods sit on the shelves while producers are enticed to produce even more. So it should be no surprise that Sen. Dick Durbin’s (D-Ill.) attempt to control fees on debit cards has done little to help consumers, while the retailers who lobbied for the law are quietly pocketing billions. One study found that the Durbin Amendment transferred more than $8 billion from banks to retailers.
Judge Leon’s Lawless Durbin Amendment Debit Card Decision
Since Judge Richard Leon issued his shocking decision on July 31 that called for even more draconian price controls under Dodd-Frank’s Durbin Amendment, some legal commentators have given the judge the benefit of the doubt. They concede the Durbin Amendment is bad law, but they say Judge Leon was correct in his interpretation of the amendment, which basically mandates the Federal Reseve not set price caps on what banks and credit unions charge for interchange fees on debit cards at any rate higher than retailers would like to pay them. These commentators, some of whom I respect a great deal, simply overlook the incredible sloppiness in Leon’s ruling in NACS. v. Board of Governors of the Federal Reserve. Leon’s decision is filled with unprofessional snark, misconstrues economic terms in the statute’s language and limits its research of “legislative intent” to the “intent” of one member of Congress who voted for … Continue reading
How Card Regulation is Killing Competition
If you think there isn’t enough competition in the payments industry, just wait a few years – there will be a lot less in the U.S. and European Union. Before I explain why let’s take a survey of the state of competition. No, the payments card industry is not a perfectly competitive industry that would warm the cockles of your micro-econ college professor’s heart. But then, what is? In the U.S. we have Visa, MasterCard, American Express, and Discover, not to mention PayPal, several PIN debit networks, and a lot of startups, all slugging it out. In the EU the state of competition varies by country, but Visa, MasterCard, American Express and often some domestic systems are competing. Visa (either International or its European doppelganger) is the big dog in a lot of places. But Visa has a lot more competition than the leading player does in a lot of … Continue reading
Durbin’s Dust Just Got Deeper: Consumer Costs Will Rise
The legacy of the Durbin amendment continues: A U.S. District Court has now ruled against the Federal Reserve Bank in a lawsuit brought to the court by merchant groups. The ruling claims that the Fed disregarded the intent of the amendment by inappropriately inflating debit card transaction fees above the average cost of the fees. While there is no doubt that this ruling will be appealed and continue to play out in the courts, the consequences of this decision will be significant. If the ruling stands, the implications for the checking debit card and prepaid debit card markets could devastate the economics of these businesses.
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