Credit unions have argued before U.S. District Judge Richard Leon in defense of the Federal Reserve's existing Durbin amendment regulation.
The arguments came in a friend of the court brief filed in a case that pits the group of retailers and retailer trade associations against the Federal Reserve. The group has filed suit against the Federal Reserve to force the regulator to cut the rate of debit card interchange more deeply than it did in the existing regulation.
Existing rules limit debit card interchange for all financial institutions, including credit unions, of over $10 billion in assets. The regulation also requires that debit card issuers, including credit unions of all asset sizes, carry two unrelated debit card networks to process their debit card transactions. This requirement was meant to prevent the processing networks tied to the two largest card brands, Visa and MasterCard, from dominating debit processing but CU critics have charged that the requirement effectively undermines a dual debit interchange structure the Durbin amendment meant to use to protect interchange for smaller asset CUs.
The merchant coalition has argued that the Durbin amendment requires regulations that cut debit card interchange even further than the Federal Reserve did already. The financial institutions argued the regulator has gone too far already.
But even as they argued against the merchant's call for further cuts to debit interchange, the financial institutions made it clear that they were no friends of the existing regulation.
“Amici are not here to defend the final rule,” the coalition wrote. “The merchants bring their lawsuit in pursuit of even deeper cuts in issuers’ interchange-fee revenues, seeking to reap the benefits of debit card transactions and innovation in the electronic payments system practically for free–an unwarranted, unfair and unprecedented windfall.”
The coalition argued that the current regulation already violates the intent of the Durbin amendment because it sets the interchange cap at below cost. “In these respects, the final rule contravenes the Durbin amendment’s requirement that the interchange fee that an issuer may receive 'shall' be 'reasonable and proportional to the cost incurred by the issuer with respect to the transaction,’” the coalition argued.
The group also attacked the current regulation's networking rules as well as the merchant's proposed changes.
“The statute sets forth a negative prohibition–it precludes issuers and networks from agreeing to limit processing to only one network,” the coalition asserted. “The board’s final rule, in contrast, imposes an affirmative obligation, requiring issuers to negotiate and enter into arrangements with multiple payment card networks for processing of electronic debit transactions. That requirement is not the best reading of the statute.”
The court has set a calendar to continue to collect briefs in the case until June 1.