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A U.S. Appeals Court on March 21 upheld the Federal Reserve's rules governing debit card interchange fees, dealing a major blow to retailers who have fought to reduce the transaction fees they are charged when customers swipe a debit card. The ruling reverses a lower court’s decision last year that the Federal Reserve had set the cap on debit card transactions too high.

The U.S. Court of Appeals for the District of Columbia ruled that the Federal Reserve’s interpretation of the Dodd-Frank Wall Street Reform and Consumer Protection Act was reasonable.

In issuing its ruling, the Court said the debit-fee issue put the Federal Reserve and the courts "in a real bind" because the Dodd-Frank amendment that limited the fees was poorly written by Congress.

Assistant Majority Leader Dick Durbin (D-Ill.) quickly issued a statement criticizing the ruling saying, “Today’s opinion by a panel of appellate judges is a giveaway to the nation’s most powerful banks and a blow to consumers and small businesses across America. The court completely ignored how the Federal Reserve’s swipe fee rule allowed Visa and MasterCard to dramatically increase debit swipe fees on many small businesses, contrary to Congress’s clear language and intent.”

Retailers have been operating under the current rules since Oct. 2011, despite an on-going legal battle over where the transaction limits should be set.

In July 2013, a judge for the U.S. District Court in Washington rejected the Federal Reserve’s regulations governing swipe fees, ruling that the agency set the cap too high on debit-card transactions. The District Court Judge said the Federal Reserve Board disregarded Congressional intent when deciding how much banks can charge for the transactions.

Judge Richard Leon ordered the Federal Reserve to come up with a position on interim fee reductions and a timeline for permanently installing new lower fees. He also suggested that retailers should be repaid by financial services companies for millions of dollars in overcharges.The Federal Reserve appealed that decision in August.

The Durbin Amendment of the Dodd-Frank Wall Street Reform required the Federal Reserve to issue rules ensuring debit card interchange rates are reasonable and proportional to the costs incurred. Effective Oct. 1, 2011, the fees that retailers had to pay on all PIN and swiped debit card transactions changed to 24 cents.

The Federal Reserve Board set the per-transaction cap at 21 cents and also allowed for an additional charge of 0.01 cent to cover fraud as well as .05 percent of the sales amount. The new interchange fees can be charged for all debit transactions on card issuers with more than $10 billion in assets.

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