Supreme Court Allows Retailer to Challenge Debit Card Swipe Fees

Supreme Court Allows Retailer to Challenge Debit Card Swipe Fees
Debit and credit cards arranged on a desk in Arlington, Va., on April 6, 2020. (Olivier Douliery/AFP via Getty Images)

The Supreme Court ruled 6-3 on July 1 that a retailer can challenge the fees the Federal Reserve System allows banks to charge for processing debit card transactions, despite not filing the challenge before the usual six-year cutoff.

Justice Amy Coney Barrett wrote the majority opinion in the case known as Corner Post Inc. v. Board of Governors of the Federal Reserve System.

Dissenting were Justices Sonia Sotomayor, Elena Kagan, and Ketanji Brown Jackson.

The respondent, the Federal Reserve System, is the central bank of the United States. Among its primary responsibilities are national monetary policy, supervising and regulating banks, maintaining financial stability, and providing banking services. The Federal Reserve also regulates credit cards.

The petitioner, the Corner Post, is a truck stop in Watford City, North Dakota, that filed a lawsuit challenging the Fed’s 2011 ruling on debit card fees.

Retail stores often impose minimum purchase requirements to make up for the percentage of sales they have to pay credit card issuers on transactions. The processing fees paid to issuers are determined by the Federal Reserve.

Congress approved the Durbin Amendment as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that followed the so-called Great Recession of 2008. The amendment allowed the Fed to regulate “interchange fees” to reimburse large banks for expenses involved in transferring money from consumer accounts to merchants as part of debit card transactions.

Until 2010, interchange fees were determined by the issuers that process the transactions. The issuers had an incentive to boost the fees to compete for banks’ business, and those fees were passed on to merchants.

Merchants complained, and in 2011, to combat perceived abuses, the Fed made a rule capping the fees that large debit card-issuing banks could charge at 21 cents per transaction as well as 0.05 percent of the value of the purchase.

Since then, the Fed published data showing that large banks’ average costs for processing debit card transactions have ranged from “just 3.6 to 5 cents per transaction,” the Corner Post stated in its petition filed with the Supreme Court.

“That means big banks have made an average profit of between 16 cents and 17.4 cents for virtually every one of 80 billion debit-card transactions every year since 2011—or at least $12 billon [sic] per year in profits.”

The Fed has never explained “how a fee cap resulting in bank profits of between 320 percent and 483 percent per transaction is ‘reasonable and proportional to the cost incurred by the [bank] issuer with respect to the transaction.’”

Two trade associations in North Dakota protested the fee structure and sued.

When the Fed filed a motion to dismiss the groups’ complaint, it argued that the lawsuit was barred because the rule had been issued too long ago. The groups amended the complaint to add the Corner Post, which opened for business in 2018, as a party to the lawsuit.

The litigants argued that the Corner Post’s claim “first accrued” for purposes of the Administrative Procedure Act’s (APA) six-year statute of limitations when it processed its first debit card transaction in 2018, seven years after the Fed’s rule was enacted.

A statute of limitations stipulates the maximum time that parties have to initiate legal proceedings after the act complained of takes place.

The APA is a federal statute enacted in 1946 that governs administrative law procedures for federal executive departments and independent agencies. The late U.S. Sen. Pat McCarran (D-Nev.) said the APA was “a bill of rights for the hundreds of thousands of Americans whose affairs are controlled or regulated in one way or another by agencies of the federal government.”

A federal district court in North Dakota threw out the lawsuit.

The U.S. Court of Appeals for the Eighth Circuit affirmed, finding that under the APA, the clock began running when the Fed issued its rule in 2011. The circuit court found that a claim against an agency regulation “first accrues” when the agency issues its rule, regardless of whether the plaintiff was in existence at the time. Other federal courts of appeal arrived at different conclusions in similar cases.

During oral arguments on Feb. 20, Corner Post attorney Bryan K. Weir told the justices that his client has paid “several hundred thousand dollars in debit card fees that it thinks are unlawful.”

“But the government says that Corner Post’s clock to challenge those fees actually started in 2011, seven years before Corner Post pumped a single gallon of gas. The government is wrong. Corner Post’s clock started when it swiped its first debit card and paid its first fee,” the lawyer said.

Representing the Fed, U.S. Department of Justice attorney Benjamin W. Snyder said the courts of appeal have “consistently recognized” that the six-year statute of limitations on an APA claim “accrues” when the agency takes action, not when “a particular plaintiff comes within the relevant statute’s zone of interests.”

If the Supreme Court were “to reject that settled practice,” the result would be “destabilizing,” Mr. Snyder said.

In the Supreme Court’s majority opinion, Justice Barrett wrote that the default statute of limitations for lawsuits against the federal government requires a legal complaint to be filed “within six years after the right of action first accrues.”

The court had to decide when a claim brought under the APA “accrues,” she wrote.

“The answer is straightforward. A claim accrues when the plaintiff has the right to assert it in court—and in the case of the APA, that is when the plaintiff is injured by final agency action.”

The Federal Reserve argued that an APA claim “accrues” when agency action is “final.” According to the Fed, the injury complained of is necessary for the suit but irrelevant to the statute of limitations, Justice Barrett wrote.

But in fact “a right of action ‘accrues’ when the plaintiff has a ‘complete and present cause of action’—i.e., when she has the right to ‘file suit and obtain relief,’” she wrote, quoting Green v. Brennan (2016).

“An APA plaintiff does not have a complete and present cause of action until she suffers an injury from final agency action, so the statute of limitations does not begin to run until she is injured,” Justice Barrett wrote.

The Supreme Court reversed the Eighth Circuit and returned the case to that court “for further proceedings consistent with this opinion.”

Justice Jackson filed a dissenting opinion, which Justices Sotomayor and Kagan joined.

“The flawed reasoning and far-reaching results of the Court’s ruling in this case are staggering,” Justice Jackson wrote, saying the majority “throws … caution to the wind.”

In the context of administrative law, limitations statutes “uniformly run from the moment of agency action,” and it is clear that the six-year limitations period begins running when the rule is published, Justice Jackson wrote.

When a plaintiff is injured is “utterly irrelevant” here, but according to the majority “accrual begins at the time of a plaintiff’s injury,” she wrote.

The majority’s “baseless conclusion” means “there is effectively no longer any limitations period for lawsuits that challenge agency regulations on their face.”

This will allow new businesses to bring fresh facial challenges to long-existing regulations and will be “profoundly destabilizing for both Government and business,” and will allow “well-heeled litigants to game the system.”

In constitutional law, a facial challenge is a challenge to a statute in which the plaintiff argues that the legislation is always unconstitutional. This is different from an as-applied challenge where the plaintiff argues that a particular application of a statute is unconstitutional. A facial challenge is more difficult to win than an as-applied challenge.

“The majority refuses to accept the straightforward, commonsense, and singularly plausible reading of the limitations statute that Congress wrote,” Justice Jackson wrote.

“In doing so, the Court wreaks havoc on Government agencies, businesses, and society at large,” she added.

From The Epoch Times