Amicus Brief: Linney’s Pizza v. Federal Reserve

Interchange fees—so-called “swipe fees”—are a crucial but hidden part of the modern economy. Using a debit card creates an interchange between the retailer and the bank, and that interaction is not free. Costs for operating the platform must be borne by either the consumer, the merchant, or both. 

The Durbin Amendment was passed in 2010 as part of the Dodd-Frank Act. It sought to protect both consumers and small merchants by capping interchange fees. Linney’s Pizza challenged the regulation that caps the fees, and, after much litigation, the case has reached the Sixth Circuit.

The Manhattan Institute has joined with Professor Todd Zywicki of George Mason University on a brief in support of the Federal Reserve’s fee system. We argue that the Durbin Amendment did the opposite of what was intended. The government created a wealth transfer: banks lost approximately $8 billion annually while large merchants—the groups that lobbied for the price cap—gained approximately $8 billion annually. Left in the large merchants’ wake were small merchants (e.g., convenience stores) and consumers. Largely, it was consumers who paid for the transfer of wealth, especially low income, younger, and other consumers less likely to own credit cards or otherwise be able to avoid debit-card-related banking costs. The court should hold that, given Congress’s stated purpose in passing the Durbin Amendment and Dodd-Frank, Congress could not have intended such a compelled massive transfer of wealth from consumers to large merchants.

Ilya Shapiro is a senior fellow and director of Constitutional Studies at the Manhattan Institute. Follow him on Twitter here.

Trevor Burrus is a legal policy fellow at the Manhattan Institute.