A federal judge in North Dakota last Friday dismissed a lawsuit brought by retail trade groups against the Federal Reserve Board over the central bank’s regulation of debit card fees paid by merchants to process those consumer payments.
U.S. District Court Judge Daniel Traynor, presiding over the case in Bismarck, North Dakota, dismissed the case on March 11, siding with a Federal Reserve motion arguing that a six-year statute of limitations on challenging federal agency actions had elapsed.
The lawsuit argued that the Federal Reserve Board "has failed to properly follow Congress’s instructions to ensure that debit-card processing fees are reasonable and proportional to the costs of debit-card transactions." It was filed last April by the North Dakota Retail Association and the North Dakota Petroleum Marketers Association. (The plaintiffs' amended complaint filed last July added a North Dakota truck stop store as a plaintiff and essentially made the same argument.)
The complaint turned on a provision of the 2010 Wall Street Reform and Consumer Protection Act that requires the Federal Reserve Board to cap the fees, also known as interchange or "swipe" fees, that large banks can charge merchants for debit card transactions through the card networks. They argued the Fed hasn’t lived up to that responsibility, exposing merchants and their consumers to ever escalating costs.
"Because the Board has not done what Congress said to cure this market failure, American consumers and merchants continue to suffer the same harms that prompted Congress to act in the first place," the original April complaint said.
Under the law, the Fed is required to perform a biennial survey to review card issuer banks' costs that are the basis for the existing fee cap, and to reset it, if necessary. In an assessment last May, the Fed left the cost basis that underpins the existing debit card fee cap unchanged. The Fed hasn’t modified the cap since it first set the cost basis in 2011.
The cap is currently 21 cents, plus .05% of each transaction for fraud loss recovery, and another cent if the bank issuer offers certain fraud protections. Debit swipe fees totaled $26.8 billion in 2020, the NRF said, citing the industry research firm The Nilson Report.
Skirting the merits of their arguments, the judge said the "plaintiffs have not diligently pursued their rights," and noted they could have filed the lawsuit years earlier.
Plaintiffs lamented the decision and said they intend to appeal it, according to a press release from the National Retail Federation on Wednesday that cited Stephanie Martz, a lawyer who represents them, along with other attorneys. She is also the federation’s chief administrative officer and general counsel.
"It’s extremely disappointing to have this case rejected over the statute of limitations rather than giving merchants their day in court to show the harm these fees cause to them and their customers," Martz said in the NRF press release. "These fees are far out of line with what banks should be allowed to charge and we’re trying to get someone to pay attention."
A spokesperson for the Federal Reserve declined to comment on the judge’s ruling or the plaintiffs’ plan to appeal it.