A legal challenge to price controls on debit card interchange fees has fallen flat. The Star-Tribune (“TCF v. Bernanke? Bernanke wins again“) reports that TCF has lost a legal challenge to the Durbin Amendment.
A U.S. appeals court in South Dakota Wednesday rejected TCF Financial Corp.’s effort to block the law with an injunction. The bank was arguing the new law, the so-called Durbin amendment passed last year as part of the Wall Street Reform Act, was unconstitutional.
The nine-page decision in TCF v. Ben S. Bernanke came out hours before the Federal Reserve Board announced it is capping the fees large banks can charge merchants for debit card transactions at 21 cents per customer swipe — higher than the 12 cent cap it originally proposed, but much lower than the current industry average of about 44 cents.
You can read the full opinion at the 8th Circuit Court of Appeals. The court’s ruling makes one of the points I’ve been making as we’ve followed this issue: Consumers will pay for debit-card use, one way or another. “The Durbin Amendment only restricts how much certain financial institutions issuing a debit card may charge for processing a transaction; it does not restrict how much those institutions may charge their customers for the privilege of using their debit-card services.” [Emphasis in the original.] In other words, hello annual fees for debit cards!
Our friends at the Competitive Enterprise Institute, meanwhile, comment on the actions of the Federal Reserve, which has decided to make the price controls somewhat less strict, raising the allowable fee from 7-12 cents per transaction (previously considered) to 21-26 cents, which will allow financial institutions to “cover most of their costs” from debit cards.
“Still,” says CEI scholar John Berlau, “this will result in government-forced shifting of costs from some of the nation’s wealthiest retailers to the backs of consumers.”
To repeat a theme that has been constant in our commentary on this topic: The “right” interchange fee should be made in the marketplace, not in the Congress or the federal bureaucracy.
Our friends at the Competitive Enterprise Institute d