The question of whether or not the Federal Reserve went far enough or too far in capping debit card interchange in accord with the Durbin amendment went before a U.S. District Court Judge recently.
Judge Richard Leon heard retailers, the U.S. government and debit card issuers argue over whether the Federal Reserved capped debit card interchange at a level that was too high (the retailer position) or whether it set the cap too low (the issuer position).
Leon sits on the U.S. District Court for the District of Columbia.
Retail associations have taken the Federal Reserve to court to force the regulator to lower the rate of debit interchange even further, which is what the associations argued the Durbin amendment requires. The issuers have countered with the argument that the debit cap regulations have already gone too far since they prevent debit issuers from covering the costs of running debit card programs and a reasonable return on their investments.
The issuer coalition, including CUNA and NAFCU, filed an amicus brief in the case earlier this year.
“The merchants have claimed all along that imposing government price controls on interchange fees would directly benefit consumers, yet there is absolutely no evidence that consumers are benefiting,” said coalition spokeswoman Trish Wexler prior to the October 3 hearing. “So while consumers have gotten nothing from the retailers, the merchants are back asking the courts to add even more to the $6 billion windfall they are now enjoying.”
“Credit unions are already feeling the pinch of the Durbin amendment’s rate cap, despite the exemption for institutions with less than $10 billion in assets,” said Fred Becker, president/CEO of the NAFCU. “The government should not set market prices.”
In addition to CUNA and NAFCU, other coalition are Independent Community Bankers of America, Midsize Bank Coalition of America, Consumer Bankers Association, Clearing House Association, American Bankers Association, Clearing House Payments Co., and Financial Services Roundtable.
Observers at the hearing described the arguments as forceful and well-reasoned and observers inclined to support both sides praised Judge Leon for being up to date and knowledgeable about card interchange. Neither the retailers nor issuers faced unusually hard questions from the judge, but neither side received particularly easy questions either, according to one observing attorney.
Judge Leon did not specify when he might rule on the question but indicated that he hoped he would be able to render a decision soon. Most observers said they looked for a decision before the end of this year.