Whether or not the Federal Reserve can or will appeal lastweek's decision overturning two-thirds of its debit interchangeregulation hangs in the balance because of several unresolvedquestions.

U.S. District Court Judge Richard Leon's detailed and causticdecision included rejecting the cap on debit interchange forissuers of more than $10 billion in assets and the rule's paymentnetwork provision.

Related:

• Judge Throws Out Fed's Debit Cap
• CUNA, NAFCU Assail Ruling
• Ruling Could Force CUs to Add Processors
• Aug. 14 Hearing Set on Cap Ruling

First, it's unclear whether the Fed can appeal on its own orwhether it has to have the approval of the Department of Justice todo so. Legal experts and lawyers point out that a number ofindependent federal agencies have independent litigation authority,but that authority usually does not cover any and everycircumstance.

For instance, an agency like the Federal Reserve might have theauthority to defend itself if sued at the district court level, butthen still need the approval of the Department of Justice to appeala loss there.

A spokesman for the Federal Reserve was uncertain about theFederal Reserve's level of independent litigation authority.

If the Federal Reserve has to win the approval of the JusticeDepartment for an appeal, it's also unclear whether that wouldhappen or, if such approval is not needed, whether the agency wouldbring an appeal to such a toughly worded opinion.

CUNA and NAFCU are urging the Federal Reserve to bring theappeal.

“CUNA was extremely disappointed with the district court'sruling last week regarding debit interchange,” said CUNA AssociateGeneral Counsel Mary Dunn.

“While it is inappropriate to lobby the Fed to encourage it tofile an appeal, CUNA is working hard to reinforce its view that theFed appeal, including ensuring any senior Fed staff are aware ofcredit unions' concerns,” Dunn said.

NAFCU General Counsel Carrie Hunt said that trade group also hasbeen working to make sure the Federal Reserve understood creditunion interest in the case, particularly the payment networkprovisions that she said represent credit union's biggestcompliance headache from the rule.

Meanwhile many acknowledge that they had not expected thedecision to have been a loss for the Federal Reserve or, if a loss,such an emphatic reversal.

“I don't think anyone inthe courtroom in October could have heard the questions fromthe bench and forecast this decision,” remarked CUNA GeneralCounsel Eric Richard, who had been in the courtroom for those oralpresentations and questions.

Richard described Leon's questions from the bench as much moreundecided than his eventual decision, which the judge handed downmonths later than when he had said he expected to complete it.

“I believe in the courtroom he said he looked for a decisionbefore the end of the year (2012) and of course the decision camemuch later,” Richard recalled

CUNA and NAFCU joined other debit issuers in filing an amicusbrief on the case at that time.

Other legal sources also said the final decision bore littleresemblance to anything they had heard in arguments before Leon,with one source observing that some of the questions which appearedto preoccupy Leon in October were on topics he did not wind upincluding in the final opinion.

“This decision just illustrated that one never can reallyknow,” when it comes to court decisions, observed Sam Febens,spokesman for the Electronic Payments Coalition, the group ofissuers, networks and card brands which banded together to defendcard interchange.

MalloryDuncan, general counsel for the National Retail Federation,said his organization had been “guardedly optimistic” about thedecision since the oral arguments, contending that while Leon'squestions had been fair and probing they had also appeared to havebeen leaning in the retailers' direction.

“There was a slight sense that he got it,” Duncan said. “That heunderstood how the system worked.”

Duncan called the decision “fair” and “good” and said hisorganization “hoped the Federal Reserve and Justice Department willdo the right thing” and let it stand.