This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

Card Fees: Fed Sent Back to Drawing Board (Update 2)

Stocks in this article: BACJPMWFCVMA

Updated from 2:37 p.m. ET with market close information and comment from Pepper Hamilton LLP partner Frank Mayer.

NEW YORK ( TheStreet) -- More than two years have passed since the Federal Reserve issued final rules to implement the Durbin Amendment, but the battle isn't over.

On Wednesday, U.S. district court judge Richard J. Leon in Washington ruled that the Federal Reserve had "clearly disregarded Congress's statutory intent by inappropriately inflating all debit card transaction fees by billions of dollars and failing to provide merchants with multiple unaffiliated networks for each debit transaction."

The Durbin Amendment -- named after Senator Richard Durbin (D., Ill.) -- is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which President Obama signed into law in July 2010. The Durbin Amendment placed limits on the interchange fees paid by merchants to banks to process debit card purchase transactions. The amendment also gave retailers more freedom to choose which network to use to route debit card payments. Durbin covered banks with total assets exceeding $10 billion.

The idea of Durbin was that by limiting the interchange fees and allowing merchants choice over which network would be used to process the transactions, the savings to merchants could be passed to consumers through lower prices.

The Federal Reserve in December 2010 estimated that the average debit card interchange fee paid during 2009 was 44 cents, and initially proposed a cap on interchange fees at 12 cents. After the usual comment period, the Fed in June 2011 issued its final ruling, for an interchange fee cap of 21 cents, plus an additional "5 basis points multiplied by the value of the transaction."

That last bit removed the possibility of a very expensive transaction having the same interchange fee as the purchase of a pack of gum.

While many investors and bankers breathed a sigh of relief that the Federal Reserve raised the interchange fee cap considerably from its initial proposal, large banks took it on the chin when the rules were implemented during the fourth quarter of 2011.

Bank of America (BAC) said in January 2012 that "the implementation of new interchange fee rules in the fourth quarter of 2011 as a result of the Durbin Amendment... reduced revenue by $430 million."

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,827.75 +12.81 0.07%
S&P 500 2,072.83 +5.80 0.28%
NASDAQ 4,787.3170 +29.0650 0.61%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs