US judge upholds Fed’s debit card ‘swipe fees’ rule, in split with other court

Sept 15 (Reuters) – A U.S. judge on Monday upheld the Federal Reserve’s “swipe fees” regulation that caps the amount banks charge merchants for processing debit transactions, a win for the board after a different federal judge last month reached the opposite conclusion and vacated the rule.

In the new ruling, opens new tab, U.S. District Judge Gregory Van Tatenhove in the federal court in Frankfort, Kentucky, found the Fed had justified the regulation, which sets a debit fee cap at 21 cents per transaction. The decision was a loss for Frankfort restaurant Linney’s Pizza, which sued, opens new tab in 2022.

In the earlier case, a federal judge in North Dakota struck the Fed’s rule in August but placed his decision on hold pending an appeal.

Retailers and banks have long fought over billions of dollars in annual swipe fees. Some merchants contend the fees lead to higher costs for them and consumers, and banks have argued the Fed’s cap doesn’t account for many costs that debit-card issuers incur to enable transactions.

A Fed spokesperson declined to comment. Attorneys for Linney’s did not immediately respond to a request for comment.

Linney’s could appeal the ruling to the Cincinnati-based 6th U.S. Circuit Court of Appeals. The Fed has not yet filed an appeal in the North Dakota case, which would be heard by the 8th U.S. Circuit Court of Appeals in St. Louis.

The regulation at the center of the lawsuit requires banks to set swipe fees at a “reasonable and proportional” level.

Van Tatenhove found that Linney’s “fails to recognize” that the board must balance between competing considerations in establishing fees that debit-card issuers charge.

A 2023 proposal by the Federal Reserve to cut the current debit fee cap from 21 cents per transaction to 14.4 cents is pending at the board. The amount of the fee was unregulated until the Federal Reserve in 2011 set the 21-cent cap.

The case is Linney’s Pizza v. Board of Governors of the Federal Reserve System, U.S. District Court for the Eastern District of Kentucky, No. 3:22-cv-00071.

For Linney’s: Tyler Green and Bryan Weir of Consovoy McCarthy

For Fed: Joshua Chadwick of the Federal Reserve Board