CKE Restaurants, Inc., parent company of Carl’s Jr. and Hardee’sbrands, today announced it has joined with other quick-serve restaurant and convenience store chains in filling an amicus brief in support of a lawsuit against the Federal Reserve regarding unjustifiably high swipe fees charged by major banks. CKE and the other chains strongly support the pending lawsuit, which states that the Federal Reserve failed to follow key requirements of a 2010 law when it adopted a cap on debit card swipe fees.
CKE and a coalition of restaurant and convenience store chains filing the brief represent tens of thousands of small-business franchises, which accept debit transactions that are almost exclusively small-ticket transactions of $15 or less. QSRs are the fastest-growing debit segment and the impact of these increases will intensify over time as more customers continue to use debit cards for small-ticket transactions. CKE was joined by 7-Eleven, Inc., Auntie Anne’s, Inc., Burger King Corporation, International Dairy Queen, Inc., Jack in the Box Inc., Starbucks Corporation, and The Wendy’s Company, in support of the existing lawsuit. The brief was accepted by the court earlier this week.
The pending lawsuit that CKE and others support was filed in federal court last November by the National Retail Federation, other trade groups and two retailers. The suit states that the Federal Reserve failed to follow key requirements of a 2010 law when it adopted a flawed cap on debit card swipe fees that took effect last fall. According to the suit, the groups say the failure has allowed big banks to continue charging unjustifiably high swipe fees and has discouraged price competition among credit card networks.
“Congress originally passed this law to cap swipe fees. Unfortunately, instead of creating a competitive environment that would benefit small-business owners – and ultimately consumers – the swipe fees charged by big banks have climbed dramatically higher for quick-service restaurants,” said Andrew F. Puzder. “Big banks are profiting, while consumers and small business are losing during a time of economic distress.”
The Consumer Protection Act of 2010
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required the Federal Reserve to set guidelines that would result in debit card swipe fees that are “reasonable” and “proportional” to banks’ costs in processing debit card transactions.
In December 2010, the Fed determined that it costs banks an average 4 cents to process a debit transaction and proposed that the fees be capped at no more than 12 cents per transaction – triple banks’ actual cost. However, after intense lobbying by banks and the credit card industry, the final regulations set the cap at more than five times the actual cost – 21 cents plus 0.05 percent of the transaction and, in most cases, an additional 1 cent for fraud prevention. This fall, however, both Visa and MasterCard announced that they would charge the maximum amount even on small-ticket transactions the card industry previously processed profitably for as little as 6 to 8 cents. The move severely impacted many members of the NRF’s National Council of Chain Restaurants division, whose transactions often amount to only a few dollars.