Stephen L. Carter: Debit card fees get a deserved hit from the Supreme Court

Before announcing the outcome of Monday’s Supreme Court decision in Corner Post, Inc. v. Board of Governors of the Federal Reserve System, Justice Amy Coney Barrett joked that it wasn’t the case the multitude had packed the courtroom to hear. And with the presidential immunity decision being handed down minutes later, the case of Corner Post has been a bit crowded out of the news cycle.

Which is unfortunate.

Because whatever one’s views on the tribulations (and trials) of a certain Donald J. Trump, what happens on remand in Corner Post might well have a lasting impact on something everybody does: buying stuff.

According to the critics, because the Corner Post decision eases the path for people who sue administrative agencies, it represents just the latest fusillade in the court’s assault on the regulatory state. But I’m less sure that Barrett’s majority opinion is wrongheaded. And I’m intrigued that courts might soon be called upon to examine the merits of the “interchange” fees merchants pay to banks for debit card transactions.

That might not be a bad thing.

The case involves a challenge to a Federal Reserve rule called Regulation II, issued in 2021 under Dodd-Frank, to get a handle on debit card swipe fees. The rule, which applies to cards issued by banks with $10 billion or more in assets, sets a maximum debit card fee of .05% of the amount of the transaction, plus 21 cents. After Regulation II went into effect, the fees fell immediately, some by well over half. (E-retailers appeared to see the biggest initial drop.) (1)

Sounds good, right? The trouble is, many businesses think interchange fees are still too high — and they blame the Fed. The statute requires the Fed to assure that the fees “shall be reasonable and proportional to the cost incurred by the issuer with respect to the transaction.” Retailers argue that the ceiling of .05% plus 21 cents is neither reasonable nor proportional. Efforts to litigate the issue have been unavailing.

Enter a North Dakota truck stop called Corner Post. In 2021, the truck stop sued the Fed, asserting that the rule’s statutory maximum fee was more than what Dodd-Frank allows. What makes the lawsuit unusual is that Regulation II was finalized in 2011 — a full decade before the suit was filed, and seven years before Corner Post opened for business.

A plaintiff who wants to challenge a federal agency rule on its face must file suit “within six years after the right of action first accrues.” (2) The technical question before the justices was whether, as most federal courts have held, that means six years after the challenged rule is finalized; or whether, as the truck stop claimed, the suit may be filed six years after the injury materializes, no matter how long ago the rule went into effect.

The Supreme Court, in a 6-3 decision, held that the six-year period begins not when the rule takes effect, but “when the plaintiff has a complete and present cause of action” — meaning that the right to use “accrues” at the moment when the injury takes place.

Here’s where things get a bit existential: In the case of Corner Post, no injury was suffered in 2011, when Regulation II went into effect, or in the ensuing seven years, because the truck stop did not exist. Rather, the injury was the hundreds of thousands of dollars in swipe fees the truck stop eventually paid to banks. Every penny was paid long after the rest of the retail world had been forced to learn to live with the rule; and long after the banks had become accustomed to the income stream.

That last part is what worries the critics. Taking the majority seriously, were I to launch a new business tomorrow, the next day I’d be able to file suit against almost any extant administrative regulation, no matter how ancient and venerable, as long as the rule costs me money.

But private entities get sued all the time to halt longstanding practices said to have caused the plaintiff harm. It’s not clear why government agencies shouldn’t bear the same risk.

Besides, most controversial federal regulations are challenged immediately, and most of those challenges fail. So even if a few of the new lawsuits succeed, the shock suffered by a regulated entity is likely to be not much different than what often happens to the rules when a new president takes over.

All of which leads us back to the interchange fees themselves. At the level of policy, I have some sympathy for the claim that they’re too high — not because merchants are suffering, but because their customers are.

Poor customers in particular.

Swipe fees on debit and credit cards alike are regressive. Except in the rare case of a retailer that gives an explicit discount for cash — gas stations provide a prominent example — the fee is factored into the price of the good. Those fees, in turn, help subsidize credit card rewards, which are most likely to accrue to wealthier shoppers. Those who don’t use plastic (or titanium!) subsidize those who do, paying the same price and getting none of the benefits. This is a well-known difficulty. Thus do lower-income customers (and older ones) subsidize the well-off.

None of this is what Corner Post had in mind in filing suit, and the puzzle might not have a regulatory solution. But only if rules are repeatedly tested are we likely to have a serious conversation on such topics.

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(1) Credit cards typically charge higher transaction fees, but the plaintiffs in this case were only challenging debit card fees, perhaps because the contested regulation only applies to debit cards.

(2) The rule is different when a suit challenges the way a federal agency has applied its rules to the plaintiff.

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Stephen L. Carter is a Bloomberg Opinion columnist, a professor of law at Yale University and author of “Invisible: The Story of the Black Woman Lawyer Who Took Down America’s Most Powerful Mobster.”