Fed Accuses Retailers of 'Misguided Interpretation' of Swipe Fee Law

WASHINGTON, D.C. – Approximately three months after a federal judge rejected the swipe fee rules that have been in place since October 2011, the Federal Reserve Board has filed its official response.

The Federal Reserve filed its appeal to U.S. District Judge Richard Leon's decision on Monday in the U.S. Court of Appeals for the District of Columbia, according to PYMNTS.com.

In his July 31 ruling, Leon said the Federal Reserve disregarded Congress' intent when it decided how much banks can charge retailers to process debit card transactions. As part of the decision, the Fed was instructed to rewrite the rules governing swipe fees.

The Federal Reserve announced in August that it would file an appeal over Leon's rejection of the swipe fees, which in part install a 21-cent cap on all debit card transaction fees. In September, Leon granted the board's request to leave the current rules in place while the appeal is being played out in court.

In this week's official appeal filing, the Fed argues that it followed the law and accuses retailers of a misguided interpretation of the legislation regarding, for example, routing options for card authentication, PYMNTS.com reported. To read the Fed's full appeal, click here.

"The merchants' insistence that the board should have required multiple routing options for each method of authentication enabled on a card, without regard to limitations imposed by consumers or merchants themselves, is based on a stilted reading of the statutory text," the Fed states in its appeal.

The Fed's regulation required debit card issuers to offer two payment networks on a card. The retailers insist on two PIN and two signature debit alternatives. In addition, the Fed said that while the merchants have provided one interpretation of the reading, "it is not the best -- and is certainly not the only -- reading of the statute," the payment industry website reported.

The Fed said it prefers a broader definition of costs sought by retailers, claiming such a view is aligned with the way Congress has previously interpreted similar terms.

Several bank trade groups and credit union associations offered their support of the appeal, filing a brief to back the Fed. Those supporters include the Credit Union National Association and the National Association of Federal Credit Unions.

Retailers have until Nov. 20 to file their arguments in the case, according to reports.