Supreme Court Rejects Petition, Dealing Merchants Another Defeat on Debit Cards

Merchants battling debit card pricing and routing rules suffered another defeat on Tuesday. The U.S. Supreme Court rejected a petition from a merchant group seeking to have the high court hear its arguments against Federal Reserve rules regulating debit card interchange and transaction routing.

The move leaves intact a lower-court decision issued last March that upheld the Fed’s rules.

The merchants argue the Fed disregarded the language of the Durbin Amendment to the 2010 Dodd-Frank Act and as a result established a cap that set debit card rates too high. The National Retail Federation, one of the merchant trade groups behind the Supreme Court petition, expressed disappointment in Tuesday’s decision but vowed to continue its campaign against what it regards as excessive debit card pricing to merchants.

“The court’s decision is disappointing because it leaves merchants and their customers paying far more than intended by Congress,” Mallory Duncan, senior vice president and general counsel at the NRF, said in a statement. “The court’s ruling means retailers will keep paying billions of dollars more than they should and that fee-hungry banks will continue to rake in unearned profits that ultimately come out of consumers’ pockets. We will continue to press the issue.”

The merchants and merchant groups behind the Supreme Court petition are: Miller Oil Co., Boscov’s Department Store LLC, NACS (formerly the National Association of Convenience Stores), the NRF, the Food Marketing Institute, and the National Restaurant Association.

Reacting to Tuesday's decision, the American Bankers Association applauded the Supreme Court but charged that merchants are pocketing savings from the Fed cap rather than passing them on to customers. “The Supreme Court has reached the right result today, but we shouldn’t lose sight of the fact that the underlying policy–the Durbin Amendment– has not accomplished its goal of lowering prices for consumers,” the banking trade group said in a statement. “At the end of the day, American consumers have paid the price for the efforts of big-box retailers to line their pockets at their own customers’ expense.”

The merchant group filed its petition in August to have the high court review a decision handed down by the U.S. Court of Appeals for the District of Columbia. The Fed had appealed a federal court decision issued in 2013 that nullified the interchange and routing rules and directed the Fed to draft new rules more in keeping with what it said was the Durbin Amendment’s language.

On pricing, the nub of the case is the Fed’s allowance of certain fixed costs for issuers, resulting in an interchange cap of about 23 cents. The merchants argue this is far too high and have repeatedly said it has cost them “billions of dollars.” Similarly, they argue the amendment’s routing language requires a choice of at least two unrelated networks for each authentication method, signature or PIN, while the Fed rule simply requires a choice of two unaffiliated networks.

The merchants faced a steep challenge in getting the Supreme Court to hear their case. Only about 1% of petitions for such reviews are granted.