Apr 18, 2014

“Swipe Fee” Limits for Debit Card Transactions Upheld by U.S. Court of Appeals

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The U.S. Court of Appeals for the District of Columbia upheld legislation that capped the “swipe fee” for debit cards at 21 cents per transaction. The decision ruled against merchants and retail groups interested in lowering the cap as they believe it to be too high.

Merchants pay swipe fees, also called interchange fees, to banks to compensate for the expenses associated with offering debit cards. Congress implemented the Frank-Dodd law in 2010 that regulated swipe fees in the hopes that it would lower prices for consumers. Prior to Federal legislation, Visa and MasterCard set the swipe fees where the fees could be as high as 44 cents per transaction.

The current swipe fee cap was set in 2011 at 21 cents per transaction. In 2013 a U.S. District Judge agreed with retailers that the Fed intended the limit to be lower and overturned the original legislation. Yet, the three-member panel at the U.S. Court of Appeals ruled in March that the “ambiguity” in the legislation was intended to allow leeway for the fee cap.

The 2011 legislation provides a challenge to lawyers on both sides as well as the Court of Appeals. The legislation itself is poorly written and open to interpretation due to its ambiguity. The ambiguity at best offers room for debate and at worse muddies the legal process for merchants seeking to lower the swipe fees attached to customers using debit cards.

The panel stated in its written opinion that “Because neither agencies nor courts have authority to disregard the demands of even poorly drafted legislation, we must do our best to discern Congress’s intent.” The ambiguity of the legislation still provides hope to retailers that the cap can still be lowered. The director of commerce and entrepreneurship for the National Restaurant Association said they will consider an appeal as their lawyers continue to find alternative in the legislation and the panel’s opinion.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

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