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Court Wrong to Make Dodd-Frank Durbin Price Controls More Draconian
Today, U.S. District Judge Richard Leon ruled that the Federal Reserve’s implementation of the Durbin Amendment of the Dodd-Frank financial overhaul, which sets price controls on what banks and credit unions can charge retailers to process debit card purchases, was not draconian enough. Though I am no fan of either Dodd-Frank or the Durbin Amendment, this is a severely flawed reading of the law based on a false definition of “legislative intent.” Should the Fed adopt Leon’s interpretation, it will almost certainly result in more bank and credit union fees for consumers. The Fed would also open itself up to even more litigation on the price controls, including constitutional issues involving the property right to seek a return on capital invested guaranteed by Due Process and Takings clauses of the 5th Amendment. In 2011, the Fed set price caps on debit card interchange fees at 21-26 cents per transaction. Although … Continue reading
Federal Courts May Reshape Debit Card Industry in U.S.
In a further illustration of the determination of merchants to wrestle control over cost of payment acceptance away from the global card networks, a Federal Court this week validated their argument that Regulation II rules were counter to the intent of Congress in writing the Durbin Amendment, and in effect, ordered the Federal Reserve to revisit its regulation. Another hearing has been scheduled for Aug. 14th. The Federal Reserve has not responded as of this writing. The court was not ambiguous in citing that the existing debit interchange fee cap was improperly calculated and included costs over and above basic authorization, settlement, and clearing. It also ruled that debit network routing choices were not provided for all authorization types, which Mercator Advisory Group interprets as meaning two networks for PIN transactions and two networks for signature transactions. So far, we have seen nothing mentioned specifically about the fraud adjustment component … Continue reading
How Swipe Fee Court Ruling Will Hurt Banks
The stiffer routing requirements may pose technological hurdles, according to David Stein, a director at the banking consulting firm Promontory Financial Group. He noted that Visa (NYSE: V) and MasterCard (MA) currently run the only signature debit networks, and questions whether those two systems could cope with potentially unpredictable swings in volume. He also said that the entire logic of the routing system would have to be changed to allow for Visa cards to be processed over MasterCard’s network, and vice versa. “I don’t want to say that they are insurmountable technological obstacles,” said Stein, a former lawyer at the Fed. “But they could be very costly and disruptive to implement.”
Banks Stand to Lose Billions as Court Slams Fed Swipe-Fee Rule
Madeline Aufseeser, a senior analyst with Boston-based consultancy Aite Group LLC, estimated that the Fed’s current implementation of the Durbin amendment has cost banks about half the $16 billion they once made from debit-card swipe fees each year. They take in an estimated $40 billion from credit card swipe fees, which are unaffected by the Fed rule, she said. If the Fed responds to the ruling by reverting to its original proposal of 12 cents per transaction, revenue for the top 50 credit-card issuers who use Visa and MasterCard networks and have assets over $10 billion would drop to $4.3 billion per year, Aufseeser calculated. Banks called on the Fed to head off the decision’s impact. “We urge the Federal Reserve to pursue all legal means to mitigate the harm this decision will cause to consumers, community banks and all institutions that provide financial services to local communities,” Frank Keating, … Continue reading
PULSE Survey Finds Small-Asset Issuers Taking Losses From Durbin
A survey that covers almost half of U.S. debit traffic shows that small-asset debit card issuers are taking losses stemming from regulations implementing the Durbin Amendment. The 2013 Debit Issuer Study is the eighth one the debit/ATM network has sponsored and was conducted in partnership with financial consultancy Oliver Wyman. The amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act capped debit interchange for issuers with over $10 billion in assets but was supposed to not affect the debit interchange income of smaller asset issuers. But the survey found that so-called exempt issuers saw a decrease of $0.02 in their interchange rates from both types of debit transactions in 2012: those that are validated by cardholder signature and those validated by PINs.
Opt-outs of $7.2 bln credit card fee settlement face risks
Over the last few weeks, some of the largest retailers in the United States have split off from a proposed $7.2 billion class action settlement over an alleged conspiracy to inflate credit card fees, hoping they can do better on their own. But their path is not without significant risks. Craig Wildfang of Robins, Kaplan, Miller & Ciresi, who has served as one of the lead lawyers for the class, said that merchants striking out on their own may not appreciate the novel nature of the claims made in the class action. “I think they have greatly underestimated the risk of the case and probably overestimated their ability in the short and medium term of getting greater economic value in a settlement,” Wildfang said.
The Whiners and the Winners of the Credit Card Wars
I believe that retailers need to stop bemoaning credit card swipe fees as a kind of necessary tax. Businesses aren’t forced to accept credit cards, and many smaller businesses do fine as cash-only businesses. Meanwhile, Visa and MasterCard provide companies with an invaluable service – keeping transactions digital and allowing retailers to avoid the hassle, expenses and danger of stockpiling large quantities of cash. Accepting credit cards also generates higher sales volume from more shoppers who use plastic for their everyday needs. Credit card usage also encourages pricier purchases – spending $1,000 in cash sure feels a lot more costly than swiping and signing on the dotted line. Lastly, swipe fees are often used to enable reward cards, which can keep customers coming back to spend more. In other words, retailers have plenty to thank Visa and MasterCard for. However, they continue to see swipe fees as taxes and an … Continue reading
Visa, MasterCard Strike Back at Swipe-Fee Settlement Foes
Visa Inc. (V) and MasterCard Inc. (MA) are firing back at retail trade groups trying to derail a pending $7.25 billion settlement over so-called merchant swipe fees. The world’s largest payment networks asked a federal judge Friday to rule that their practices for setting fees paid by merchants that accept credit and debit cards aren’t anticompetitive, which could limit the type of lawsuits retailers could bring against the companies in the future. Such a ruling is “necessary to prevent the continuation of endless, wasteful litigation” between merchant trade groups and Visa and MasterCard, the companies said in a complaint seeking declaratory judgment filed in U.S. District Court in Brooklyn.
Visa, MasterCard Sue Interchange-Fee Settlement Drop Outs
Visa Inc. (V) and MasterCard Inc. (MA) sued trade groups and retailers that rejected a $7.25 billion settlement in a price-fixing suit and asked a court to rule that the card companies’ fee practices weren’t illegal. “After years of negotiation, the same retailer trade groups that willingly agreed to a multibillion dollar settlement are now turning around and demanding even more,” said Trish Wexler, a spokeswoman for a coalition representing the interests of the payment card industry. “Enough is enough — these tired old arguments and this battle needs to be put to bed.”
4 ways to know if a merchant is charging a fee for credit card transactions
Consumer advocates are reminding shoppers to look out for merchants that impose credit card surcharges. Merchants must meet certain requirements if they impose a surcharge on credit card purchases: • Retailers must post a notice at the entrance of their stores and at the point of sale. • The retailer has to disclose the surcharge percentage and explain the fact that the charge is being imposed by the retailer (not the credit card company) and does not exceed the amount the retailer pays to accept credit cards. • Receipts need to show the dollar amount of the surcharge. • Online merchants must alert consumers that a surcharge will be imposed on the webpage where credit cards are first mentioned. “The rule of thumb is this – you can’t gouge your customers, and you can’t hide the fees,” said Trish Wexler, spokeswoman for the Electronic Payments Coalition, which represents banking and financial institutions, including Visa … Continue reading
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