The National Retail Federation (NRF) welcomed the U.S. Supreme Court’s July 1 ruling allowing a lawsuit to move forward that says the Federal Reserve set its 2011 cap on debit card interchange or “swipe” fees too high.
Five federal appeals courts ruled against the Corner Post, a truckstop and convenience store in Watford City, North Dakota, because it missed a six-year statute of limitations on filing a challenge under the Administrative Procedure Act (APA). But the 6th U.S. Circuit Court of Appeals held that the six-year limit does not start to run until a party is aggrieved.
The retailer argued, according to court documents, that it should not be bound by the statute of limitations because the store opened in 2018, after that statute of limitations had run out. It argued that the six-year time limit should not start until a business is adversely affected, which for Corner Post would be March 2018, when it accepted its first debit card payment.
“There are multiple reasons why the statute of limitations has not expired in this case,” NRF Chief Administrative Officer and General Counsel Stephanie Martz said. “The bottom line is that a small business harmed by a faulty regulation should not be denied its day in court based on a technicality, especially one that has been in dispute. The Federal Reserve set the cap far higher than intended by Congress and merchants like Corner Post have paid millions of dollars too much as a result, in turn driving up prices for their customers. That harm is ongoing and hasn’t been changed by the passage of time. The Supreme Court has made the right decision by allowing this lawsuit to be decided on its merits.”
Washington, D.C.-based NRF is not a party, but Martz is a co-counsel in the case.
The lawsuit says the Fed set the cap higher than allowed under the Durbin Amendment, a 2010 law directing it to adopt regulations resulting in debit card swipe fees that were “reasonable” and “proportional” to banks’ costs. Congress limited costs the Fed could consider to incremental expenses, and the Fed initially proposed a limit of 7-12 cents per transaction. Under pressure from banks, however, it also took fixed costs, fraud losses, transaction monitoring and network processing fees into consideration. The final cap, which applies only to financial institutions with at least $10 billion assets, was set at 21 cents plus 1 cent for fraud prevention and 0.05% for fraud loss recovery.
Since then, the Fed has reviewed banks’ costs every two years as required by the law but has not kept the cap proportional to falling costs. A Fed survey found banks allowable costs averaged 7.7 cents per transaction as of 2009, meaning the cap was originally less than three times the cost. The latest survey showed the average had dropped to 3.9 cents by 2021, making the cap over five times banks’ costs.
Last October, the Fed finally proposed lowering the cap to 14.4 cents per transaction and reducing the amount for fraud loss to 0.04% but raising the amount for fraud prevention to 1.3 cents. This May, NRF filed comments saying the base rate should be 10.5 cents to keep it at the original proportion, although tiered rates could be set based on banks’ debit card transaction volume. NRF said the 1 cent for fraud prevention should be eliminated since adoption of EMV chip cards in 2015 shifted fraud costs to merchants, and that the percentage for fraud cost should be based on banks’ net costs after considering fraud borne by merchants.
Before Durbin, banks charged about 45 cents to process a typical debit transaction, and regulation has saved merchants $9.4 billion a year, with studies showing 70% of the savings has been passed on to consumers. Debit and credit card swipe fees are most merchants’ highest cost after labor and drive up prices by more than $1,100 a year for the average family. Debit swipe fees totaled $36.3 billion in 2023, according to the NRF, and total swipe fees have more than doubled over the past decade to a record $172 billion.
Also, the New Civil Liberties Alliance (NCLA)—a nonprofit advocacy group opposed to the “unlawful power of state and federal agencies”—filed an amicus curiae brief in Corner PostInc. v. Board of Governors, urging the Court to treat the Administrative Procedure Act’s (APA) six-year statute of limitations to be the time allotment that it is.
The Board of Governors of the Federal Reserve System adopted Regulation II in 2011, establishing fees for debit-card transactions. Corner Post began operating in 2018 and filed its lawsuit challenging Regulation II in 2021, claiming it had incurred excessive swipe fees under the rule. The U.S. Court of Appeals for the Eighth Circuit ruled that Corner Post’s opportunity to file suit had expired in 2017, six years after the rule first issued.
The Supreme Court recognized that federal law allows Corner Post to sue within six years of when its injury from Regulation II began to accrue—which it did—regardless of when the rule was originally promulgated. Placing the statute of limitations within six years of the regulation’s promulgation “would absurdly require Corner Post to have taken legal action before it was even founded,” NCLA said. The justices ruled that the APA entitles Corner Post to adequate and meaningful judicial review of the rule in court.
“This decision is a tremendous win for individuals and businesses who have been subject to problematic regulations but were barred from challenging them because of the passage of time,” said Kara Rollins, litigation counsel for the NCLA. “As this case shows, it makes little sense to deny a party the opportunity to challenge harmful regulations based on when they were promulgated versus when the harm occurred. Doing so would flip the traditional claims-accrual process on its head.”
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