Experts: Apple Pay May Breach Federal Law

Three industry experts believe Apple Pay raises legal questions. Find out why.

Three industry insiders believe that Apple Pay, the mobile payment system for iPhone, violates the Durbin Amendment to the Dodd-Frank Act.

The amendment, keeping small businesses in mind, is intended to ensure that so-called “swipe fees” charged to businesses that accept plastic are “reasonable and proportional to the costs incurred” and “to limit payment card networks [like MasterCard and Visa] from imposing anti-competitive restrictions,” according to the U.S. Congress website.

“Passage of this measure gives small businesses and their customers a real chance in the fight against the outrageously high ‘swipe fees’ charged by Visa and MasterCard. It will prevent the giant credit card companies from using anti-competitive practices,” legislation sponsor U.S. Sen. Richard “Dick” Durbin (D-IL) said in a statement after the amendment passed the Senate in 2010.

But Douglas Kantor, a partner at the international law firm Steptoe & Johnson and a lawyer for the international trade group National Association of Convenience Stores, questions whether Apple Pay plays fair.

“It’s my view that Apple Pay is breaking the Fed’s regulation,” he tells American Banker.

Mark Horwedel, chief executive of the Merchant Advisory Group, questions whether Apple Pay skirts federal law.

“Merchants, as a practical matter, don’t have the options that Durbin affords them in all of these instances, including tokenized transactions with Apple Pay,” he tells American Banker.

National Retail Federation general counsel Mallory Duncan partly blames the major payment card networks, which she said helped develop the tokenization system used to make Apple Pay transactions secure.

That system “essentially hides the other competitive networks from the merchants when a debit transaction is used,” Duncan tells American Banker. As a result, competing card networks are blocked by Apple Pay despite the fact that the Durbin Amendment requires businesses to offer competitive networks.

Meanwhile, the federal government appears to already be on board with Apple Pay.

The San Jose Mercury News reported in February that Apple CEO Tim Cook announced during a technology summit at Stanford University that Apple Pay might soon be used for “some transactions with the federal government, including federal payment cards and admission to national parks.”

What’s your take on Apple Pay? Sound off in a comment below or on our Facebook page.

Karla Bowsher
Karla Bowsher
I’m a freelance journalist and former newspaper reporter who has covered both personal and public finance. I've worked for a top 50 major metro daily and a community newspaper as well as ... More


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