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US judge strikes Fed’s cap on debit ‘swipe’ fees

WASHINGTON (AP) — A federal judge has struck down a rule setting a cap on the fees that banks can charge merchants for handling debit card purchases. He said the Federal Reserve didn’t have the authority to set the limit the way it did in 2011, improperly including data that made the cap too high.

The ruling by U.S. District Court Judge Richard Leon on Wednesday handed a victory to a coalition of retail groups — which are seeking a lower cap — and a setback to banks. The retail groups had sued the Fed over its setting the cap at an average of about 24 cents per debit-card transaction.

The previously unregulated “swipe” fee averaged 44 cents. The Fed initially proposed a 12-cent cap, and the retailers had argued that the Fed buckled under pressure from bank lobbyists when it set the cap at double that level.

The Fed now must craft a new rule. The current one will remain in effect in the meantime.

“The cap is the first-ever limit on debit card fees. Before it took effect in October 2011, banks had negotiated such fees with merchants. A big chain like Starbucks would likely get a better rate than a local coffee shop because it handles more customers. The fees were typically based on a percentage of the purchase price.

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