US Supreme Court wrestles with bid to challenge debit card 'swipe fee' rule

FILE PHOTO: Bank debit and credit cards are photographed in this illustration picture
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By John Kruzel and Andrew Chung

WASHINGTON (Reuters) -U.S. Supreme Court justices on Tuesday grappled with a North Dakota convenience store's challenge to a government regulation on debit card "swipe fees" - a case that could make it easier for businesses to try to undo longstanding federal rules.

Arguments in the case focused on whether the store was too late in bringing its 2021 lawsuit challenging a 2011 Federal Reserve regulation governing how much businesses pay to banks when customers use debit cards to make purchases.

The store, called Corner Post and located in Watford City, appealed after lower courts threw out its lawsuit on the basis of missing the six-year statue of limitations that generally applies to such litigation. Corner Post argued it should not be bound by the statute of limitations because it opened for business in 2018, meaning its legal injury arose only after the deadline had passed.

The Supreme Court, with its 6-3 conservative majority, in recent years has taken a skeptical view toward the power of federal agencies. In this argument, its three liberal justices and some of its conservatives differed on the implications of allowing lawsuits like the Corner Post's after the six-year deadline.

Swipe fees, also called interchange fees, reimburse banks for costs involved in offering debit cards. The fees are determined by Visa, MasterCard and other card networks, with a cap of 21 cents per transaction set under the Fed's 2011 rule.

Liberal Justice Elena Kagan worried about the potential for disruption if the court were to permit lawsuits like Corner Post's to be brought a decade or more after a regulation was finalized.

"I mean, this is kind of a revolutionary ask," Kagan told Corner Post's lawyer Bryan Weir.

Kagan asked Justice Department lawyer Benjamin Snyder, representing the Federal Reserve Board of Governors, about the implications if the court undermines this statute of limitations and, in another pending case, overturns a precedent requiring judges to defer to federal agency interpretations of U.S. laws.

Such an outcome, Snyder said, could put in jeopardy "every regulation that an agency has adopted in the last, I don't know, 75 years or something."

Corner Post's argument - that the clock should begin running only after a legal injury materializes, or "accrues" - appeared to resonate with conservative Justice Neil Gorsuch.

"The normal rule - and I think you'd have to concede it - is that the plaintiff's injury is the moment of accrual," Gorsuch told Snyder.

Corner Post, backed by various conservative and corporate interest groups including billionaire Charles Koch's network and the U.S. Chamber of Commerce, contends that businesses should have wide latitude to challenge regulations they consider unlawful and burdensome.

Conservative Chief Justice John Roberts reminded Snyder of the principle that everyone is entitled to their day in court if they are injured.

"You're saying, 'Well, that's just too bad, you can't do anything about it because other people had six years to do something about it,'" Roberts said.

Liberal Justice Ketanji Brown Jackson pushed back on that premise, noting that a lawsuit by a new business could upset settled regulations that other companies had followed for decades and that at some point a rule should be considered final.

A decision in the case is expected by the end of June.

Before congressional passage of the 2010 Dodd-Frank Wall Street reform law that directed the Fed to cap swipe fees, retailers paid as much as 44 cents per transaction, which had made it hard for small businesses to accept debit cards.

The Fed set the cap at 21 cents per transaction, a move that prompted litigation by retailers who expected a much lower cap. The Supreme Court in 2015 left in place a lower court's ruling backing the regulation.

Corner Post's suit argued that the Fed's rule defied congressional intent and was "arbitrary and capricious" under a federal law called the Administrative Procedure Act. A judge dismissed the suit, citing the statute of limitations. The St. Louis-based 8th U.S. Circuit Court of Appeals affirmed that decision.

The Fed last year proposed cutting the cap to 14.4 cents per transaction, though that has not yet been finalized.

(Reporting by John Kruzel; Editing by Will Dunham)