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The Supreme Court of the US (SCOTUS) has agreed to hear a case challenging the debit card interchange fee cap set by the Federal Reserve.
Last Friday (September 29), SCOTUS said it would hear a lawsuit by Corner Post claiming that the US debit card interchange fee cap is set too high.
The case concerns the Federal Reserve’s rule adopted in 2011, which established that the interchange fee on debit card transactions must not exceed 21 cents plus 1 cent, set aside for fraud prevention, and 0.05 percent of the transaction value, reserved for fraud loss recovery. The cap applies only to large banks with more than $10bn in assets.
The Fed set the regulatory cap in accordance with the post-financial crisis Dodd-Frank Act, which directed the central bank to limit the fee at an amount that is “reasonable and proportional to the cost incurred by the bank issuer with respect to the transaction”.
Corner Post, a convenience store and truck post in North Dakota, argues that the interchange cap gives enormous profits to banks and is neither reasonable nor proportional to the costs.
Although issuers can charge 21 cents for a debit card transaction, their actual costs range between 3.9 and 5 cents, according to the most recent study from the Fed in 2019.
That means big banks have made an average profit of between 16 cents and 17.4 cents “for virtually every one of 80bn debit-card transactions every year since 2011 — or at least $12bn per year in profits”, Corner Post wrote in its petition to SCOTUS.
“The [Fed] has never explained how a fee cap resulting in bank profits of between 320 percent and 483 percent per transaction is ‘reasonable and proportional to the cost’,” it went on.
The statute of limitations question
Corner Post is one of the North Dakota plaintiffs who filed a lawsuit against the Fed rule in May 2021, as reported by Vixio.
The challenge was rejected at the district court in March 2022, a decision that was later upheld by the court of appeals in December 2022.
The courts agreed that the claims were barred as retailers had filed the case outside the six-year statute of limitations, which passed in July 2017.
However, Corner Post argues that it opened business only in March 2018 and it would have been “absurd” to require the firm to challenge the rule before that.
According to the retailer, the clock for challenging an agency rule actually starts “upon injury to the plaintiff” rather than “the publication of the agency action”, its petition shows.
This interpretation means that the six-year statutory deadline started to run on the first day Corner Post opened its doors in 2018.
Corner Post stressed that this review regime “is essential” for businesses seeking judicial recourse against “the administrative state, which now wields vast power and touches almost every aspect of daily life”.
A SCOTUS decision will resolve a split between various appellate courts which, over time, have come to different conclusions on this question.
Previously, five federal appeals courts have ruled against this argument, while a Sixth Circuit Court decision confirmed it, ruling that “a federal regulation that makes it six years without being contested does not enter a promised land free from legal challenge”.
The National Retail Federation (NRF) welcomed the SCOTUS decision to take up the case.
“Basic concepts of due process and fairness require federal agencies to adhere to the laws that Congress drafts regardless of when the rules to implement those laws were issued,” said NRF chief administrative officer and general counsel Stephanie Martz in an emailed statement.
“It’s been a dozen years since the Fed promulgated these rules, but Corner Post was harmed by them only recently and has every right to challenge them,” Martz added.
