(Adds comments from restaurant group, Fed)
By Emily Stephenson
WASHINGTON, March 21 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 our best to discern Congress's intent," the panel wrote
in its opinion.
It said the rules "generally rest on reasonable
constructions of the statute."
The appeals panel did direct the Fed to better explain the
way it treated costs to banks of monitoring transactions for
A Fed spokesperson said the agency was pleased with the
The National Retail Federation, whose members include
Wal-Mart and JCPenney, and the National
Restaurant Association, and other groups sued the Fed in 2011
over the fee cap. Representatives of the groups said they were
disappointed with the ruling and were considering appealing the
"To have fees that continue to be so unreasonable in the
debit card space is detrimental to the folks that we represent
as well as ultimately their customers," said Liz Garner,
director of commerce and entrepreneurship at the restaurant
"We are absolutely considering an appeal. Our lawyers are
still kind of digging through the opinion that came out today
and seeing what our options are," she said.
The groups could appeal to the full appellate court or
directly to the U.S. Supreme Court.
Swipe fees, also known as interchange fees, are set by Visa
, MasterCard and other card networks. Before
Congress intervened, the fees paid by retailers were about 44
cents per transaction.
Hoping that lower fees would result in lower prices for
consumers, lawmakers called for a cap in the 2010 Dodd-Frank
They directed the Fed to set a limit that would cover the
costs to banks to provide the cards, ignoring any expenses that
were not tied to specific debit transactions.
The Fed decided network processing fees, costs to monitor
transactions for fraud and other expenses were relevant, even
though they were not specifically mentioned in the law, and it
incorporated them into the 21-cent cap.
Merchants argued those costs went beyond what was allowed
under the law.
The appeals panel said Dodd-Frank's language was "confusing
and its structure convoluted", but determined that it did leave
room for the Fed to consider additional costs.
Banks, which opposed capping fees and supported the Fed's
defense of its higher limits, applauded the appeals court's
"Reasonable minds have prevailed in vacating the district
court's ruling to affirm the existing rule," Richard Hunt, chief
executive of the Consumer Bankers Association, a lobby group for
banks, said in a statement.
"This drawn-out fight should put on notice those members of
Congress who insist upon interfering with the free market."
The panel also sided with the Fed on a rule related to
networks that process debit transactions. Retailers argued the
Fed did not do enough to promote competition among those
networks, as Dodd-Frank required.
Visa's shares were up 1.9 percent after the release, while
those of MasterCard were down 2.3 percent.
The case is NACS v. Board of Governors of the Federal
Reserve System, U.S. Court of Appeals for the District of
(Reporting by Emily Stephenson; Editing by Tom Brown)