U.S. judge postpones throwing out swipe fee cap on debit cards

WASHINGTON Wed Aug 14, 2013 2:05pm EDT

WASHINGTON Aug 14 (Reuters) - A U.S. judge postponed throwing out a controversial cap on debit card "swipe fees" and gave the Federal Reserve one week to take a position on whether to write an interim rule to replace the fee cap.

In late July, Judge Richard Leon of the U.S. District Court for the District of Columbia ruled that the Fed had improperly capped the interchange, or swipe, fees that retailers pay to banks when customers use debit cards to make purchases.

He said in that ruling that the Fed disregarded the intentions of Congress, which called for limiting the fees as part of the 2010 Dodd-Frank financial reform law, by setting the cap too high.

It was unclear at the time whether the current cap of 21 cents per transaction would remain temporarily in place while the Fed crafted a new fee limit. On Wednesday, the judge postponed throwing out the Fed's rule for a week.

He said the Fed should determine whether it could write an interim final rule to replace the 21-cent cap and asked how long that would take. An interim rule would take effect immediately but could be adjusted later based on industry comments.

Leon criticized the Fed for not deciding quickly whether it could do an interim rule and said the Fed's Board of Governors would not have "the luxury" of taking its time. He asked them to take a position on writing an interim rule by next Wednesday.

Dodd-Frank called for the cap on swipe fees to reduce burdens on retailers and hopefully trickle down to consumers in the form of lower prices. But when the Fed announced its cap, retail groups protested that it let banks charge higher fees than the law intended.

The National Retail Federation and other groups filed a lawsuit to overturn the Fed's cap. The judge's ruling in their favor two weeks ago dragged down shares of card companies Visa Inc and MasterCard Inc.

Leon also said on Wednesday that the Fed and the retailers should consider whether merchants should be compensated for having been "overcharged" under the current rule.

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