Fed Says Leon Overvalued Durbin in Interchange Decision
The Federal Reserve may appeal U.S. District Court Judge Richard Leon’s interchange debit decision by arguing the judge gave undue weight to opinions of Sen. Richard Durbin (D-Ill.) when evaluating the regulation.
Judge Leon agreed with the merchant plaintiffs on July 31 when he threw out two thirds of the regulator’s debit card interchange rule, saying the Fed had departed from the law and ordering a rewrite.
The Federal Reserve appealed Leon’s opinion on Aug. 21, and hinted at a possible appeal position in Aug. 28 briefs that requested Leon to stay his order, pending the appeal.
The first round of arguments over the appeal is due to be filed by Oct. 11.
When arguing for the stay, the Federal Reserve presented reasons why it believed its appeal would succeed. That Leon paid too much attention to Durbin’s opinions was one such reason.
“The Court also gave undue weight to the floor statement of the bill’s sponsor in determining that the statutory language was so unambiguous as to foreclose agency interpretive authority,” the Fed asserted, citing other cases which said congressional intent cannot be drawn from the opinions of a single legislator.
“The remarks of a single legislator, even the sponsor, are not controlling in analyzing
legislative history,” the Fed wrote.
Instead of looking to the senator’s floor statement, the Fed argued, the court should have focused on the plain meaning of the law and its intent to control the actions of debit issuers or networks. That would support the interpretation that debit issuers only have to provide more than one debit processing option per transaction type if they are issuing cards where only one type of debit processing is possible, the Fed said.
For example, if a credit union were to issue a card on which only transactions were validated with a signature, then it would have to provide two possible signature debit networks. But in a situation where a card already provides the basic choice between signature and PIN, the debit issuer can provide only one network per method, provided they were distinct and independent of one another.
According to the law, the Fed wrote, networks and issuers may not limit the routing of transactions to fewer than two unaffiliated networks. The Board must prevent issuers and networks from restricting the number of networks to fewer than two.
Nothing in the law unambiguously requires two or more networks per authentication method without regard to merchant or consumer choice, the Fed continued, it was authorized to interpret it in a manner that would be faithful to the statutory purpose of preserving and enhancing competition, while taking account of practical realities and consumer protection goals.
If, the Fed argued, in any given transaction involving a card with dual authentication methods, a particular merchant’s routing options are restricted because the merchant only takes one form of authentication, or because the customer chooses one over another, that would be beyond its ability to regulate because those factors have nothing to do with the debit card issuer or network.
No one at the Federal Reserve would comment on the likelihood of whether the argument might reappear in the agency’s formal appeal, but legal authorities watching the case said they thought it was likely.
One counsel, familiar with both banking and administrative law and speaking on background, observed that while the appellate argument might be expanded from what the Fed presented in its brief for an injunction, it would be rare that the regulator would present wholly new arguments.
Another lawyer and legal scholar said she agreed, but expected more detailed legal arguments in court.
A third source, also on background, agreed and noted that even if the Fed wanted to, advancing brand new arguments might be difficult because when appealing a district court decision, a party can’t introduce completely new facts.
However, there is more latitude to introduce new legal arguments, the source noted, especially if they pertain to issues that were not apparent before the lower court rendered its decision.
For example, the Fed could question a district court judge’s ability to order a federal agency to rewrite a rule, the source observed.